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LendIt Fintech News: Daily Coverage of Fintech & Online Lending


Roofstock Offers a New Way to Access the Single Family Rental Market

Earlier this year Roofstock announced Roofstock One which allows investors to purchase fractional shares of single family rentals

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For a majority of investors there are two ways to access the family rental market, either buying a property directly or purchasing a publicly traded real estate fund or REIT. Roofstock first tackled opening up individual direct ownership by creating a platform for buyers and sellers of single family rentals. To date, they have transacted over $1 billion on the platform which allows investors to browse properties in select markets. Most often, these homes already have tenants in place. The platform removed a major hurdle for investors to access real estate if the numbers simply didn’t work locally. You can learn more about this offering in our Lend Academy podcast episode from October of 2018.

Earlier this year Roofstock launched Roofstock One, which is a hybrid between the completely hands off approach a REIT offers and still having direct ownership of an individual property. I spoke with CEO and Co-Founder Gary Beasley to learn more about this unique offering and how they position the product.

Roofstock One is a platform which allows fractional ownership on rental homes with minimums as low was $5,000. It is truly a passive product where everything from financing to property management is taken care of. Interestingly, it was born out of feedback from users. Beasley spoke with people who had been on the original Roofstock.com platform over 20 times but had yet to make a purchase. He learned that potential investors were paralyzed by the choice of picking an individual property and some were reluctant when it came to financing. Some investors didn’t want to be on the title of the property and others simply expressed concerns over dealing with property managers/tenants. That, coupled with the lack of diversification when you invest in one property is how Roofstock One was born.

So how does Roofstock One compare to REITs? As I alluded to earlier there are many ways to get access to real estate. REITs or real estate investment trusts are similar in that you are invested in the same asset class. One benefit of direct ownership is that you are much less correlated to the equity market according to Beasley. Some REITs in the market today currently have low yields and instead count on the equity appreciation. Investments through Roofstock One aim to provide more income and you can also select the markets you’re interested in. One of the downsides for some investors is that you need to be an accredited investor to access Roofstock One.

When you log in to the site you are presented with all of the details on the property including the price per share. As an example, you might pay $6,645 for 1 out of 10 shares for a house priced at $129,000 and thus hold 10% ownership in the house. Note that this represents only half of the cost of the home. The rest is financed by Roofstock and they also purchase at least a 10% ownership in the property for the first year so interests are aligned. Part of the proceeds of the shares are allocated to reserves which will pay for any maintenance. If the reserves are ever not sufficient to cover expenses, Roofstock One will draw additional debt on the property to avoid capital calls. Below is a screenshot of Roofstock One in how deals are presented.

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Prosper Releases Prosper Invest Mobile App

Investors in the marketplace lending platform will have a new way to access their Prosper account.

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Back in June 2016, Prosper released a new modern look for their website. Since then, the company has changed little from the individual investor experience perspective. Earlier this summer, Prosper also officially retired their ‘classic view’ which some longtime Prosper investors still preferred.

Now the company has released the Prosper Invest mobile app, available for both iOS and Android devices to match their website experience. The below screenshots were provided by Prosper which show the investor experience.

The app features are as expected though it is interesting that Prosper is still focusing on the peer to peer lending aspect of the platform by seeing how each investment impacts someone’s life. The “My Impact” feature, shown above allows investors to see how their investments are allocated to those across the country. It also includes stories from Prosper customers who share their positive experience.

As part of the Prosper Invest mobile app users are able to:

  • Set up, review, and adjust target portfolio allocations using the Prosper Auto Invest tool
  • Add cash to a Prosper investment account in one-time, weekly or monthly increments
  • Monitor and manage portfolio performance, as well as see historical return information for the Prosper portfolio

While this won’t be a game changer for Prosper it is good to see them putting some effort into supporting their individual investors.

LendingClub Discusses National Bank Charter, GreenSky Exploring Sale

Today fintech companies LendingClub and GreenSky reported their Q2 2019 earnings results.

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Today LendingClub reported their Q2 2019 earnings. Highlights include record loan originations of $3.1 billion, up 11% from the prior year period and record net revenue of $190.8 million, up 8% year over year. The company reported a GAAP Consolidated net loss of $(10.6) million compared to $(60.9) million in Q2 2018.

LendingClub attributed data driven improvements in leading to improved conversions with 72% of customers going from application to approval in 24 hours. In the same period last year this number was just 46%.

As we’ve seen recently, LendingClub continues to push their structured programs. 35% of loans purchased in Q2 2019 were through LendingClub’s structured program channels, notably their certificate program which was expanded upon recently with levered certificates.

One of the biggest changes for the quarter is the addition of the Select Plus Platform. It is no secret that LendingClub has morphed over time into a platform that tilts heavily towards prime consumers. LendingClub has removed E, F & G grade loans from the platform for investors. However, they are now working with sophisticated investors who will purchase loans outside of LendingClub’s current underwriting criteria, though CEO Scott Sanborn noted that that the average FICO of borrowers served in this channel is little changed from LendingClub’s own mix. The difference with this program is strictly serving investors who might have a different view on credit or specific segments. It is still early days for the program as they are live with just one partner, though it moves LendingClub in the direction of being able to serve more borrowers without additional marketing cost.

A topic that has been coming up more often is the potential of a national bank charter. Last week we learned that small business lender OnDeck was pursuing a charter and LendingClub is doing the same. According to CEO Scott Sanborn they are past the exploratory phase and are now in the business planning phase, having carefully considered the benefits. LendingClub will continue to offer the marketplace model or verbiage they’ve recently been using, a “visitor to member, product to platform” approach. We could see a broader mix of products for consumers, with the ability for LendingClub to better serve their partners. Another significant benefit is a new source of funding and greater resiliency of the platform.

This is a significant undertaking so it will probably be some time before this effort comes to fruition. It was mentioned in the question and answer section of the call that LendingClub would potentially hold off on any potential share buybacks due to ensuring they have the funds to capitalize the bank. It’s important to note that with LendingClub currently originating 10% of all unsecured loans, the opportunity to drive revenue growth with additional products is quite significant.

On the simplification front, LendingClub now has 309 employees at their new office in the Salt Lake City area which will continue to expand to the capacity of 550 throughout the rest of the year. LendingClub is also outsourcing over 450 operations and technology support employees in order to cut further in costs. What these initiatives and others translate to is LendingClub delivering on the promise of driving originations while still keeping costs in check. The chart below shares the trend of expenses over time as it relates to originations.

Other highlights for the quarter include LendingClub’s first Moody’s rated securitization, the levered certificates as previously mentioned and the partnership with Funding Circle and Opportunity Fund.

GreenSky Q2 2019 Earnings

In their earnings release today GreenSky suspended giving financial guidance and the most surprising news was that the company was exploring a possible sale. GreenSky went public 15 months ago and their price after today’s earnings is well below their opening share price. The public markets in the US simply haven’t been good for fintech companies. David Zalik, GreenSky Chairman and CEO included this statement in the press release:

Notwithstanding the Company’s solid operating results, in light of the complexity of the Company’s operating model, we do not believe that the Company’s current market value is reflective of the Company’s strong record of cash flow generation and intrinsic value. Accordingly, GreenSky’s Board of Directors, working together with its senior management team and legal and financial advisors, has commenced a process to explore, review and evaluate a range of potential strategic alternatives focused on maximizing stockholder value. In connection with this review, GreenSky has retained FTP Securities LLC (“FT Partners”) and J.P. Morgan Securities LLC as its financial advisors, and Cravath, Swaine & Moore LLP and Troutman Sanders LLP as its legal advisors.

The news sparked Christopher Donat, an analyst Sandler O’Neill to speculate that Square or Goldman Sachs could be potential buyers according to this article in American Banker. GreenSky is different from most companies in the fintech space in that it partners with contractors, health care providers and merchants to offer financing at the point of sale. It is a more capital light business model than other companies in the space though some have shared concerns over relying heavily on bank funding as Regions Financial recently decided to end their relationship. However, GreenSky currently has aggregate funding commitments of $11.9 billion, of which $4.0 billion were unused as of June 30, 2019.

Other financial highlights include transaction volume increasing 20% to $1.6 billion from the prior year period with second quarter revenue growing 31% over the prior year to $138.7 million. The company spent $146 million to repurchase shares over the last eight months and currently has $209 million of unrestricted cash on hand as of the end of Q2.

Conclusion

As an outsider it has been interesting to watch the public fintech companies, both LendingClub back in 2014 as well as more recently GreenSky. LendingClub seems to finally have their vision for the future of the company and there are some potentially very interesting initiatives coming down the tracks. Looking back I think many people would have expected the company to innovate at a much faster pace. For GreenSky it’s unfortunate that the public markets haven’t been receptive. Zalik and the team at GreenSky truly took an innovative approach at the outset and built one of the few fintech companies that is profitable today. It will be interesting to see what happens from here.

The Story of Rocket Loans and the Rebirth of Detroit

Detroit-based Rocket Loans is a unique consumer lender that is starting to gain some real traction

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We have all heard the stories about Detroit. It was already struggling before the financial crisis and that episode eventually led to the city going bankrupt. You would never know it today as it has a downtown as vibrant as any mid-sized city in the country.

I was in Detroit recently at the invitation of Rocket Loans CEO, Bill Parker. I do visits to fintech companies quite regularly but usually in the big hubs of New York, San Francisco or London. This was my first visit to Detroit for a couple of decades so I was excited to see how the city had changed. And you can’t really tell the story of Rocket Loans without also talking about the city of Detroit.

Rocket Loans is part of billionaire Dan Gilbert’s family of companies, many of which are based in downtown Detroit. This group of over 100 companies includes Quicken Loans, Rocket Mortgage, Rapid Finance, StockX, Fathead as well as some Cleveland sports teams such as the NBA’s Cleveland Cavaliers.

Bill invited myself and my colleague, Bladimir Estevez, not just to their offices for a meeting but to do a formal tour of downtown Detroit. This is something that Rock Holdings (the holding company) conducts on a daily basis and it is done to impress upon visitors that Detroit is back.

To say that Dan Gilbert has been important to the resurgence of Detroit would be a massive understatement. He moved Quicken Loans downtown in 2010 (from the suburbs) and has bought dozens of downtown office buildings, some of which were abandoned or nearly empty, and redeveloped them into modern Class A offices. What was amazing to see was the before and after photos of some of these buildings. [Read more…]

OnDeck Pursuing Bank Charter, Loses Chase

OnDeck shared a flurry of updates on the business in their Q2 earnings results.

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OnDeck had some pretty interesting updates in their earnings release which took place earlier today. CEO Noah Breslow shared that the company has decided to pursue a bank charter which will enable the company to offer their small business customers a wider range of products. OnDeck has been studying their options for some time and felt that the timing was right. While OnDeck didn’t want to divulge their vision or timing for what the company may offer they did mention that the bank charter would be accomplished through a transaction or a de novo bank application. 

To date, OnDeck has operated as a non-bank lending institutions, but they believe the opportunity is much bigger, even mentioning “digital banking for small businesses” as well as increasing product and services both in lending and non-lending on the call. There will also be benefits as it relates to funding. While this may be a costly endeavor they believe the benefits outweigh the costs. At this point this announcement leaves a lot to the imagination but it alludes to a number of interesting opportunities for OnDeck in how their business could transform.

OnDeck also shared plans for a $50 million stock repurchase program noting that even with the investment they will still have capital for further growth and a buffer against economic uncertainty.

Probably the biggest shock was that Chase is concluding their partnership with OnDeck. When this partnership was announced it created quite the buzz in the fintech community. To be working with Chase was a huge vote of confidence for OnDeck and I too thought it would radically change OnDeck’s business.

Chase will stop originating loans through OnDeck and OnDeck will continue to service the loans for two years. Breslow stated that the decision on Chase’s side was due to a change in strategic priorities and spanned more than just their small business lending plans. This decision makes one think about the long term plans of the bank as perhaps they look to build their own technology platform.

Despite the bad news with Chase, we learned that the pipeline has never been stronger with OnDeck’s ODX offering and that they are making progress in converting new customers. We should hear more announcements before year end.

In the quarter OnDeck also closed the transaction with Evolocity to combine their Canadian operations. Moving on to financials in Q2 2019, net income was $4.3 million compared to $5.6 million from the prior year period and $5.7 million in Q1 2019. Gross revenues were $110.2 million and originations were $592 million in what is typical for the second quarter.

 

You can view OnDeck’s Q2 earnings press release here.

Conclusion

It’s hard to sugarcoat losing the largest bank in the US as a client. Since the relationship was announced many have been looking to get a better understanding of the traction of the partnership. Now we have an understanding of perhaps why we never got the details. Since the Chase partnership was announced OnDeck created a new division called ODX to house this part of the business and signed up PNC on their ODX platform. There is clearly still opportunity in the ODX business but going forward OnDeck is going to have to work harder to prove the model out to their investors.

My Quarterly Marketplace Lending Results – Q1 2019

My latest quarterly investment results show an overall 6.09% return for the year ending March 31, 2019

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Put this in the “better late than never” department. Yes, I know it is late July and I am only now just publishing my Q1 2019 returns. Thanks to those of you who reached out but rest assured I am still committed to sharing my results publicly and I apologize for the extreme tardiness of this update.

I am happy to report this quarter that my returns continue to improve. Since hitting bottom in Q2 of 2018 my returns have improved each quarter. Both LendingClub and Prosper showed their best returns in almost two years as the underwriting changes that were implemented in 2017 have had a positive impact.

Overall Marketplace Lending Return at 6.09%

My overall returns for the twelve months ending March 31, 2019 was 6.09%. This is up from 5.35% that I reported in Q4 and 4.77% in Q3. My original six LendingClub and Prosper accounts had another full percentage point jump. Last quarter I reported the returns on those six accounts had jumped from 3.19% in Q3 to 4.16% in Q4. We see this quarter they are at 5.18%. This is quite a remarkable turnaround and while I still think 5% is not a high enough return for unsecured consumer lending, it is certainly moving in the right direction.

One point to note is that I am liquidating my taxable accounts at LendingClub and Prosper. I have a little too much exposure to consumer credit in my overall portfolio and so I will be focused only on investing in my IRA accounts there. I am moving my redeemed cash into other marketplace lending accounts as well as other investments outside of fintech.

Now on to the numbers. Click the table below to see it at full size.

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LendingClub Introduces Levered Certificates

Levered Certificates will consist of an equity certificate and a fixed rate note, they will trade under the ticker "LCRT"

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In December 2017 LendingClub launched their new certificate investment vehicle. This was a way for certain institutional investors to buy whole loans because the investment was structured as a pass through security with its own CUSIP and traded on OTC markets. These CLUB certificates became very popular and they have now issued more than $2 billion of these securities.

Today, LendingClub announced the next generation of these certificates: Levered Certificates. As the name implies this is way for investors get leverage on their LendingClub investment. This new structure will consist of two securities, an equity certificate that provides exposure to a pool of unsecured personal loans and a fixed rate note that provides stable term financing over the life of the certificate.

Both the certificate and the note will trade in the over-the-counter market with CUSIPs and are cleared through the Depository Trust and Clearing Company (DTCC).

LendingClub’s Chief Capital Officer, Valerie Kay, said this about the new program:

We continue to innovate on products and structures to enable more investors to participate in our marketplace and gain access to consumer credit. We expect our structured program innovation to further improve LendingClub’s balance sheet efficiency and reduce administration costs.

LendingClub’s Levered Certificates can be seen on dv01, Bloomberg and Intex with the “LCRT” ticker.

Ten Years of Investing in Marketplace Lending

I look back at my ten years of involvement in marketplace lending and share the major changes I have seen in the last decade

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This month marks ten years since I made my first investment in what was then called peer to peer lending. In July, 2009 I transferred $500 in to LendingClub to give it a try. Little did I know that first small investment would end up changing my life.

I had first read about peer to peer lending back in 2008 and I was immediately intrigued. I discovered Prosper but when I tried to open an account there they were in a quiet period. So I went looking for an alternative platform and found LendingClub. Within a few months I added $10,000 to that initial $500 investment. Then, I became so enamored with the whole idea of peer to peer lending that I was soon rolling over 401(k) accounts for my wife and I, as well as telling all my friends about it.

It was just over a year later that I decided to start blogging about this industry. Back then no one was writing about it and I really believed the industry had so much potential. So, I started the blog that would become Lend Academy back in November, 2010. The more I learned about peer to peer lending the more convinced I became that it had tremendous potential.

In 2013 as the industry was getting ready to take off I started LendIt, along with my fellow co-founders. It was the first ever conference focused on online lending and the one day event sold out. Then came the go-go years of 2014 and 2015 where dozens of new platforms got under way and venture capital was flowing into the space. The industry had its biggest setback in 2016 with the LendingClub crisis but the strong platforms endured and industry moved to focus on profitability.

Now, as I look back on the last 10 years I see so much has changed. The industry is now known as marketplace lending (thanks to Charles Moldow of Foundation Capital) and it has driven a resurgence in consumer lending and small business lending.

Ten Ways Marketplace Lending Has Changed Since 2009

1. Scale [Read more…]

Three Years of Brexit Turmoil and Yet UK Fintech is Thriving

Fintech companies in the UK continue to thrive despite the Brexit overhang

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Last Sunday marked the three-year anniversary since the UK voted to leave the European Union. There was barely a mention of this milestone in the financial media but I thought it was worth noting for one reason. Despite all the uncertainty that Brexit has wrought UK fintech is booming.

If we go back to the summer of 2016 in the UK Revolut had just 200,000 customers and was worth £42 million after their £6.7 million Series A. Monzo was still called Mondo (they changed their name in August 2016) and was valued at £30 million. Zopa was still a P2P lending platform with no hint of their future plans to obtain a banking license.

Back then many publications were calling for the death of London as a leading fintech hub after the Brexit vote. The FT ran an article about Berlin seeking to replace London as the post-Brexit fintech capital and Business Insider said there was a surge of fintech workers looking to leave London for Berlin. There was even talk of small cities like Vilnius taking advantage of the Brexit situation. Goldman Sachs was forecasting a Brexit-induced recession in the UK in 2017.

Fast forward to today and we see a UK fintech sector that is booming. So much so that there was an article earlier this month in Business Insider that said London may soon eclipse Silicon Valley as the leading fintech hub. That idea would have been laughable back in the summer of 2016. I don’t think anyone expected the UK fintech industry to thrive like it has done.

Since that fateful summer, most of the established fintech companies in the UK have gone from strength to strength. With few exceptions, these companies are growing and raising money at ever higher valuations. There are more fintech unicorns in London today than in San Francisco (although, once you take the broader Bay Area, London still trails in this metric).

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ABOUT LENDIT FINTECH NEWS

LendIt Fintech News, Powered by Lend Academy, has been bringing you all the news and information about fintech and online lending since 2010 when it was founded by Peter Renton. We not only have the industry’s most active news site, but also the largest investor forum and the first and most popular podcast.

We are a team of fintech enthusiasts who have been covering the industry for many years. With a deep knowledge of online lending, digital banking, blockchain, artificial intelligence and more our team covers the daily news and writes in-depth editorials.

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