Banks and Fintechs transition to Originate to Distribute
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Video is a part of
Video is a part of the TradeFinex 2020 Event held at Abu Dhabi on 27 Jan 2020.
Click on the link to watch the full video: TradeFinex Explained | Online Loan Or...
Content from Slides for reference on originate to distribute model.
Empowering Loan Originator
Banks & Fintechs:
Post Sub Prime Paradigm Shift from "Originate to HOLD" to "Originate to Distribute“
Problem: Lack of origination Standards for distribution
Solution: API & Origination Tools for Banks and fintech
*Invoice Factoring
*Bond/Commercial Paper issuance
*Letter of Credit/BG/SBLC digitization
*Supply chain track and trace
*Bill of Lading integration
Invoice Factoring using Quickbooks: Invoice Factoring using Quickbooks
P2P Trade Finance Distribution Network
TradeFinex uses peer to peer decentralized Network to enable distribution of Trade Finance assets from originators to funders
Distribution using underlying blockchain platform protects data and allows originators and funders to exchange deal details
Connecting alternative investors class:Become a Financier on TradeFinex Netw...
Decentralized access to origination documents like Credit Report, Business Profile & KYC documents
What Are the Originate-To-Hold and Originate-To-Distribute Models?
Here’s a brief overview of each model.
Originate-To-Hold Model:
With the Originate-To-Hold model, lenders (that is banks and non-banking organizations) make loans and hold them through maturity. Under this model, lenders don’t sell these loans to investors or other financial institutions.
In the Originate-to-hold model, banks focus on managing risks associated with solvency and leverage, funding stability, and maturity mismatches.
Originate-To-Distribute (OTD) Model:
In the OTD model, the originator of a loan sells it to third parties through securitization (the process in which illiquid assets- through financial engineering- are converted into securities).
The OTD model holds significant potential in creating an efficient risk-sharing tool, in the global financial system. Especially by enabling banks to diversify their portfolios.
In the past, the originate-to-distribute (OTD) model has accorded banks the flexibility to vary the volume of loans they make without making large adjustments to their asset portfolio or equity capital.
However, potential incentive problems and conflict of interest between stakeholders have the potential to erode the noble objective of risk-sharing and portfolio diversification.
Prior to the Subprime Mortgage Crisis, for instance, banks with aggressive involvement in the OTD market had lower screening incentives. The OTD model allowed lenders to benefit from high origination fees without considering the borrowers’ credit risk. In turn, banks and third parties accumulated loans that had overly poor soft information.
Accumulation of low-quality OTD loans led to excessively high charge offs and borrower defaults, in the period leading to the subprime financial crisis.
Read full article: Medium: are-banks-and-fintechs-shifting-to-the-originate-to-distribute-model
Watch the full video: TradeFinex Explained | Online Loan Or...
Join TradeFinex Group: LinkedIn: 10436249
Click on the link to watch the full video: TradeFinex Explained | Online Loan Or...
Content from Slides for reference on originate to distribute model.
Empowering Loan Originator
Banks & Fintechs:
Post Sub Prime Paradigm Shift from "Originate to HOLD" to "Originate to Distribute“
Problem: Lack of origination Standards for distribution
Solution: API & Origination Tools for Banks and fintech
*Invoice Factoring
*Bond/Commercial Paper issuance
*Letter of Credit/BG/SBLC digitization
*Supply chain track and trace
*Bill of Lading integration
Invoice Factoring using Quickbooks: Invoice Factoring using Quickbooks
P2P Trade Finance Distribution Network
TradeFinex uses peer to peer decentralized Network to enable distribution of Trade Finance assets from originators to funders
Distribution using underlying blockchain platform protects data and allows originators and funders to exchange deal details
Connecting alternative investors class:Become a Financier on TradeFinex Netw...
Decentralized access to origination documents like Credit Report, Business Profile & KYC documents
What Are the Originate-To-Hold and Originate-To-Distribute Models?
Here’s a brief overview of each model.
Originate-To-Hold Model:
With the Originate-To-Hold model, lenders (that is banks and non-banking organizations) make loans and hold them through maturity. Under this model, lenders don’t sell these loans to investors or other financial institutions.
In the Originate-to-hold model, banks focus on managing risks associated with solvency and leverage, funding stability, and maturity mismatches.
Originate-To-Distribute (OTD) Model:
In the OTD model, the originator of a loan sells it to third parties through securitization (the process in which illiquid assets- through financial engineering- are converted into securities).
The OTD model holds significant potential in creating an efficient risk-sharing tool, in the global financial system. Especially by enabling banks to diversify their portfolios.
In the past, the originate-to-distribute (OTD) model has accorded banks the flexibility to vary the volume of loans they make without making large adjustments to their asset portfolio or equity capital.
However, potential incentive problems and conflict of interest between stakeholders have the potential to erode the noble objective of risk-sharing and portfolio diversification.
Prior to the Subprime Mortgage Crisis, for instance, banks with aggressive involvement in the OTD market had lower screening incentives. The OTD model allowed lenders to benefit from high origination fees without considering the borrowers’ credit risk. In turn, banks and third parties accumulated loans that had overly poor soft information.
Accumulation of low-quality OTD loans led to excessively high charge offs and borrower defaults, in the period leading to the subprime financial crisis.
Read full article: Medium: are-banks-and-fintechs-shifting-to-the-originate-to-distribute-model
Watch the full video: TradeFinex Explained | Online Loan Or...
Join TradeFinex Group: LinkedIn: 10436249
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