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P2PFA Shuts Down, Rolls Into Innovate Finance

After more than 8 years the trade group, which paved the way for other organizations across the globe, is shutting down.

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The UK Peer to Peer Finance Association (P2PFA) was first established in 2011 (we covered it here). The trade body counted many of the leaders in peer to peer lending as members and served as the leading voice when it came to working with regulators in the UK.

Funding Circle, Zopa and Ratesetter were the founding members. Zopa co-founder Giles Andrews was the original chair of the organization, but Christine Farnish, an ex-regulator, soon took over that position in December 2012 and served until February 2018 when Paul Smee took over.

The P2PFA was a critical part of the of the p2p lending industry and set the standard for other organizations that were eventually created across the globe. The Marketplace Lending Association in the US was set up five years after the P2PFA and leaned on many of their principles. Their proactive engagement with UK regulators led directly to the world’s first set of regulations specifically for the p2p lending industry.

Over the years, the P2PFA set standards and also produced valuable research on the sector. In 2015, LendIt Fintech partnered with the P2PFA, holding the P2PFA Summit @ LendIt to further the conversation around regulation and peer to peer lending. We also partnered with them in subsequent events.

Now, it has been announced that the P2PFA is shutting down due to declining relevance according to The Times. Prior to the announcement, some leading platforms had decided to leave the trade group. It has been reported that some of those working for the P2PFA will be joining Innovate Finance, an organization which represents the wider fintech market. The P2PFA website already appears to be offline.

The UK has been a leader when it comes to regulation and the P2PFA was a big part of that. Many platforms have increasingly focused on institutional investors, reducing or eliminating their offerings for individual investors, which has certainly contributed to the news today. Still, dozens of true peer to peer lenders still operate in the UK serving retails investors. The P2PFA and the contributions from those involved are certainly appreciated by the entire fintech community.

Where Does Real Estate Crowdfunding Stand in 2020?

Real estate crowdfunding fell short of its original promise but a handful of companies are still flourishing

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The real estate crowdfunding space has been an interesting one to watch. Just a few short years ago, in 2015 and 2016, there were many companies that seemed to be doing well with funds flowing into some large financing rounds. Today, there are just a handful that have stood the test of time. The rest? Some have gone out of business and others have gone quiet. The most notable companies which have shuttered in recent years include RealtyShares, which raised $60 million and iFunding.

The Wall Street Journal recently published a piece highlighting some of the success stories and what has differentiated some of these companies from the pack. Fundrise was founded back in 2012 and is probably the most unique when it comes to the investors they serve and how the investments are structured. The different investment offerings spanning more diversified eREITS to eFunds which focus on a specific city. For instance the Washington DC eFund aims to capitalize on how Amazon’s HQ2 will effect local real estate.

AlphaFlow and PeerStreet are well known names in the crowdfunding space. PeerStreet is a marketplace for individual accredited investors to access short duration real estate loans. AlphaFlow partners with online platforms along with offline real estate lenders to offer investors access to real estate backed loans. Up until recently Alphaflow, was also open to individual investors but have since shifted their strategy to focus on institutional money.

One of the factors that perhaps stalled the growth of pure play real estate crowdfunding is simply the massive amount of capital entering real estate in recent years. The rebound of the economy has meant that real estate developers have had many options when it comes to financing. This doesn’t mean that these companies haven’t been successful though. Besides those previously mentioned, and not included in the WSJ article, LendingHome and Sharestates are two that have achieved significant scale in the market today. Sharestates crossed $1 billion in loans in 2018 and LendingHome recently shared that they have crossed $5 billion. Besides their short duration loans, LendingHome is also getting into the single family rental mortgage space. New York based Cadre is also a quiet achiever, requiring a $50,000 minimum investment.

Many companies as evidenced above who originally focused on accredited investors have since shifted to institutional money, a much more efficient way to grow a lending business. The exception being Fundrise and Groundfloor which have stayed true to focusing on retail investors. Overall, while many of these companies were born at a time when many thought real estate crowdfunding was the future, they continue to resemble less and less platforms to democratize real estate investing.

The 10 Largest Fintech Funding Rounds of 2019

Fintech funding really heated up in 2019, here are the ten biggest deals of the year

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Last year we saw continued interest in a broad array of fintech companies. Recently the fintech space has become more mature, bringing in ever larger rounds to the more established fintech companies. At the beginning of 2019 we began to track the fintech deals over $10 million and we are doing the same for 2020. In 2019 we recorded 199 funding rounds representing over $14 billion invested. Here are the ten largest funding rounds from our list. The total investment from these rounds alone was over $4 billion.

1. Greensill

SoftBank is no stranger to committing large amounts of capital and their $800 million investment in Greensill was just another example of that. Greensill has more than doubled their growth rate annually since 2015 and at the time the round was announced was valued at $3.5 billion. The company operates in the supply chain finance space. They plan to accelerate their growth in Brazil and enter other markets including China and India. Read more

2. Chime

Chime’s brought in a $500 million funding round making a big splash at the end of the year. They are one of the leaders in the digital banking space and are valued at $5.8 billion. The round was led by DST Global and they intend to use the funds to hire employees and expand into more products. CEO Chris Britt also discussed the possibility of making fintech acquisitions. Read more

3. SoFi

SoFi is one of the more well known fintechs in the US. This has been a result both of their marketing spend, having secured the naming rights to a new stadium in Los Angeles and their success in branching out into multiple product offerings. The $500 million round was led by Qatar Investment Authority, valuing the company at approximately the same valuation as their previous round of $4.3 billion. Read more

4. Klarna

Klarna operates in the buy now, pay later space and was founded all of the way back in 2005. They raised $460 million in August 2019, making them Europe’s most valuable fintech startup at $5.5 billion. Klarna is planning to use the funds in part to expand to the US, similar to plans of many of the other leading fintechs in Europe. They are also one to keep an eye on for a potential future IPO. Read more

5. OakNorth

Just behind Klarna comes another large investment in a European fintech with OakNorth’s $440 million fundraising round in early 2019. OakNorth is different than most making this list in that they are a bank focusing on serving small and medium sized growth businesses. They operate a lending business and have also licensed their technology to banks in at least nine different countries. Read more

6. Nubank

Nubank is the only fintech from South America making the list. The Brazil-based company raised a $400 million Series F round in July and reportedly fetched a valuation over $10 billion. Nubank which offers a variety of financial products to consumers had over 12 million customers as of July 2019 which makes it the sixth largest financial institution by customer count in Brazil. They also recently expanded to Mexico and Argentina. Read more

7. Robinhood

Robinhood is best known for their free stock trading app and they raised $323 million in 2019. What’s interesting is that many of their competitors have cut commissions on trading but it’s clear that Robinhood wants to expand beyond free trading into other financial products. They recently announced a revamped savings product after a failed launch in late 2018. The company had 6 million customers at the end of 2018, a number which has surely grown since making them well positioned as they move into new areas. Read more

8. Affirm

Affirm is well known in the US with their point of sale finance solution. The $300 million Series F round included Thrive, Fidelity, Wellington Management, Ballie Gifford, Sound Ventures as well as existing backers Founders Fund and Khosla Ventures. Read more

9. N26

N26 is most well known in Europe but officially launched in the US in 2019. The $300 million round valued the company at $2.7 billion. At the time of the announcement on January 9, 2019 the challenger had 2.3 million customers in 24 European markets. Read more

10. TransferWise

TransferWise raised $292 billion in May and planned to use the funds to hire 750 more team members. More recently the company reported that they handle $5.25 billion in transactions every month and have over 6 million users. 24% of their payments now happen in under 20 seconds. Read more

Conclusion

With such a large amount of interest in fintech in 2019 it is hard to imagine how 2020 will shape up. There have been some industry experts that have taken pause with the valuations some of these companies have been fetching, but it seems like that had little impact on the deals we saw close throughout 2019. We’ll be keeping a close eye in 2020 and look forward to hearing updates from many of these companies at our upcoming LendIt Fintech USA event in May.

The Ten Biggest News Stories of the Decade in Marketplace Lending

We take a look back at the news stories that shaped marketplace lending in the 2010s

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I started writing about marketplace lending back in 2010, so I have spent almost the entire decade immersed in this space. While we have expanded our coverage on Lend Academy today beyond marketplace lending this remains a major focus.

We have certainly come a long way in the past ten years and the industry is almost unrecognizable from where it was in 2010. Back then there were just two notable companies in the space, LendingClub and Prosper, originating just a few million dollars a month in loans. No one could have predicted that by the end of the decade marketplace lending would have led to a resurgence in personal loans and changed expectations for customer experience across all lending verticals.

As I look back at the past decade here are, in my opinion, the top ten most important news stories in chronological order.

Prosper Recapitalizes and Brings in a New Management Team
(January 2013)

At the time this was a huge story. The number two marketplace lender had been struggling for some time and was in serious danger of running out of money. This new funding round was small by today’s standards at $20 million but it ensured that Prosper would remain a going concern. The deal was architected by, the now fintech legend, Ron Suber as he brought in a new management team and a new board to guide Prosper on to their future growth path. It helped set the industry up for success over the next several years.

LendingClub Becomes First Marketplace Lender to go Public
(December 2014)

This was a momentous day for marketplace lending as market leader LendingClub became the industry’s first company to go public. The IPO was a huge success by any measure. By the end of the first day of trading LendingClub was valued at $8.46 billion and they had raised $870 million in cash. Of course, at the time we had no idea what would happen to the stock but there was a sense a real optimism that this company was going to change the world.

Second Circuit Rules on The Madden Decision
(August 2015)

The biggest legal issue the industry dealt with this decade was the ramifications of the Madden v Midland decision. We have been following this case since the Second Circuit ruling in 2015 and it has had far reaching consequences for the industry. It has led to a reduction in lending activity in Second Circuit states (NY, CT and VT) but the bigger concern was that this kind of ruling would spread nationally. That has not happened and there have been multiple regulatory fixes proposed plus the OCC and FDIC have weighed in as well. But as of this writing nothing concrete has changed since the 2015 decision.

SoFi Raises $1 Billion Led by SoftBank
(September 2015) [Read more…]

A Look Back at the Five Years Since the LendingClub IPO

A lot has changed since LendingClub became a public company back in December 2014

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It is hard to believe that it was five years ago today that LendingClub went public. December 11, 2014 marked an important moment in fintech history as LendingClub became the first online lending platform to complete a successful IPO. At the following LendIt event held a few months later in NYC there was an incredible enthusiasm for the industry as we all imagined the continued upward trajectory of the industry.

Peter Renton (left) with LendingClub CEO (then COO) Scott Sanborn at their IPO at the NYSE

A lot has changed over the years and many are quick to point out LendingClub’s poor performance in the public markets and the LendingClub debacle which was widely reported on back in May 2016. Publicly listed fintech lenders have struggled overall while companies in the payments space such as Paypal and Square have fared much better. Peers who have remained private have had much more success when it comes to valuations which is likely why we haven’t seen many new fintech lending IPOs in recent years. Those who have gone public have tended to perform poorly at least from a stock price perspective. However, there is much more to the LendingClub story. For starters they are the largest personal loan provider in the US having issued over $53 billion in loans, a stat I believe is often overlooked. [Read more…]

LendingClub Q3 2019 Earnings Results Review

LendingClub broke origination and revenue records in Q3 as they approach GAAP profitability

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LendingClub shared their Q3 2019 earnings this afternoon. Over the past few years LendingClub has steadily been making progress on their business. While there hasn’t been any groundbreaking news from the fintech company in recent years, they continue to execute on their plans and they are now approaching GAAP profitability. They also have some interesting projects in the works which we touch on below.

LendingClub crossed $3.3 billion in originations, up 16% year over year breaking last quarter’s record of $3.1 billion.

Revenue also topped records at $204.9 million, up 11% year over year. Losses narrowed to a GAAP net loss of just $400,000 compared to the prior year period where they lost $22.8 million. Adjusted net income came in at $8 million, up from a loss of $7.3 million in the prior year period. This is the first time that the company has had a positive adjusted net income since Scott Sanborn first became CEO in 2016. Sanborn noted in February of 2019 that one of the goals of this year was to drive revenue growth, something they have been successful in doing year to date.

LendingClub highlighted the launch of LCX which was announced in October 2019. They now have five distribution platforms in total: LCX, scale, select, Select Plus and retail. LCX allows investors to bid on loans at par, above par or below bar and offers seamless settlement of those loans. LendingClub’s goal with LCX was to build a broader market and bring in additional investors to something that they view as a first for the industry. Per the press release the structured programs combined have allowed the business to access new and larger pools of capital and represented over $1 billion in funding in the third quarter. LendingClub is also seeing some investors participate directly on LendingClub’s platform via whole loans or structured programs that originally participated in securitizations.

Moving on to the borrower side LendingClub has had success in growing applications and conversions as 71% of customers went from application to approval within 24 hours, up from 60% in Q3 2018. As we have seen discussed many times speed matters and this is a testament to the work LendingClub has put in over the years. While companies that give out loans typically have higher NPS scores LendingClub reported that they have an impressive 80 NPS.

Over the past couple of years LendingClub has been working on driving down costs. One of the major components of that was expanding offices outside of San Francisco. Forty-eight percent of LendingClub staff are now located outside of their San Francisco office.

From the competitive landscape perspective Sanborn noted in the earnings call that LendingClub continues to take market share in the personal loan space. They receive a whopping 53,000 applications on a daily basis and half a million members logged into their member center in September. To capitalize on this engaged audience LendingClub began offering a beta version of credit monitoring and two-thirds of users who were offered credit monitoring took advantage of it.

Looking forward LendingClub is still very focused on being a financial health platform which will allow them to have a lifetime relationship with their customers. While little action has taken place we will start to see LendingClub expand offerings further into 2020. Some of this will be done via their own product offerings and other products eventually will be offered through partnerships. Digging into what we might see in 2020 it seems that LendingClub is ready to ramp up auto originations. Sixty-one percent of their users already have an auto loan and Sanborn shared that the traction they are having in auto is ahead of where they were in personal loans over the same amount of time. In 2020 they plan to double auto originations with around one-third of originations likely coming from existing members.

Sanborn touched a little bit on how they have worked over the years to prove out the credit model for auto. One of the things they had to be careful about is the fact that there is less yield cushion when it comes to auto compared to personal loans. They have been testing loans out using their balance sheet but will be looking to add a sizable investor going forward. Despite the plans for growth it will be some time before the fruits of their labor in auto will show a meaningful impact in their financial results. There was also a question in the earnings call regarding secured lending and while it doesn’t seem this is imminent it is an area LendingClub is looking at but one of the challenges is continuing to take friction out of the process.

Last quarter we reported that LendingClub planned to pursue a national bank charter. This will have a number of benefits to the company including engaging more members, accessing more data, stability of funding, cost of funding and also regulatory clarity. This isn’t likely to happen soon, but LendingClub is in a good position internally as they continue down this path according to Sanborn.

From a credit perspective unemployment remains low and consumers continue to spend though LendingClub, like their competitors, have been increasingly picky about the loans they accept. Given the continued competitive nature of the personal loan space Sanborn noted that the smaller players are struggling more where LendingClub is seeing benefits of their scale. The spread between credit cards and personal loans is currently at a record high making it an interesting time for personal loan providers.

In the Q&A a question was asked about limiting investments from retail investors in four states which is a topic we received a number of inquiries about and covered here. In September LendingClub disallowed retail investors from four states (in the call Sanborn stated five). Sanborn stated that many people are aware that LendingClub is regulated both at the state and federal level. As part of their prep for the bank charter they took an updated view of licensing requirements. Sanborn said they are working quickly to get it resolved. With retail making up only 4% of originations overall it has had little impact on the business but certainly did disappoint the retail investment crowd.

Conclusion

LendingClub clearly has been making progress in their personal loan business but the real exciting vision is the one set out by the team to become a financial health platform. Given their huge member base it is also a vision which could result in significant business over the long term and it’s going to be interesting to see just when they are able to pull this off. LendingClub also updated their Q4 2019 and FY 2019 guidance below.

Prosper Officially Launches HELOCs with First Bank Partner BBVA

After a year since the first announcement Prosper has launched HELOCs with BBVA

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It was last November when we first heard that Prosper had plans to expand their offerings from personal loans into HELOCs.  In 2018 David Kimball noted that they would be partnering with banks on the new product and loans would be available both directly through Prosper.com and also as a white-labeled offering. Now we know their first bank partner is BBVA.

As you’d expect from a fresh offering in 2019, the online application takes just a few minutes and potential borrowers are provided with an instant pre-qualification. There are also no origination fees. Per the official press release, BBVA USA is Prosper’s exclusive bank partner in four states (BBVA Ventures has also participated in Prosper’s equity financing rounds).

We were able to catch up with Prosper CEO David Kimball again to get an update on the new offering. He noted that while they would have liked to bring it to market faster they wanted to make sure they took the time to do it right.

The platform will initially be available to customers in Alabama, Arizona, Florida and Texas direct through Prosper.com and a select group of BBVA US customers will have access via a BBVA branded version of the same platform in the coming months. One of the benefits of this bank partnership is Prosper will not need to go to the capital markets for funding. BBVA is just their first bank partner and Kimball shared with us that they have an additional bank partner in the pipeline and they are looking towards having a national footprint soon.

Most people are already familiar with Prosper’s personal loan offering and Prosper tested the cross sell of their HELOC in an interesting way. After a potential borrower went through the application process for a personal loan, some borrowers were offered two different options: the personal loan they applied for, or a HELOC. The types of applications that typically fit were those loan applications for debt consolidation or home improvement.

Kimball noted that since these customers already were in the mindset of receiving a personal they often ultimately selected the personal loan. Some consumers weren’t swayed by the promise of a lower interest rate (often several hundred basis points cheaper) and they also had to weigh other factors. Prosper has worked hard to improve the user experience, but the application process is longer than that of a personal loan meaning the borrower may not receive their funds as fast. It is also likely that borrower education is a factor as some consumers just aren’t familiar with a HELOC. Prosper is looking to remedy these challenges both with speeding up the process and working on a strategy for borrower education on HELOCs. They are also looking to offer the HELOC as an option sooner in the funnel for particular situations like a borrower seeking funds for a home improvement.

As for the partnership approach itself Kimball noted that their two pronged approach through Prosper.com as well as offering it as a white label approach has its benefits, mainly the stability of funding. It seems like there is a trend these days of the fintech lenders becoming tech providers. We’ve seen this in consumer lending with Avant’s Amount as well as on the small business side with OnDeck’s ODX platform. By offering the tech platform the fintech companies get to benefit from the banks existing customer base thereby saving on customer acquisition costs.

Conclusion

The HELOC is a product with an interesting history. HELOCs peaked around 2009 as many consumers used their HELOCs as an ATM to fund various purchases as home prices continued to go up in value. Since then it’s no surprise that they have fallen steadily over time and HELOCs have not rebounded with the recent rise in housing prices and the subsequent rise in equity that homeowners have ($6.3 trillion in the second quarter of 2019). One of the big challenges will be educating borrowers on the benefits of this product over competing products like the personal loan which are already optimized for a great customer experience. When used responsibly and with further innovation to the time to fund, the HELOC is clearly a better product for homeowners. With a few fintechs getting into this space, namely Figure and now Prosper it’s going to be interesting to see if we see an increase of homeowners again opting for HELOCs.

The Latest Firms Entering the Ultra Competitive Deposit Taking Space

We dig into the landscape of financial institutions competing over deposits from consumers.

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It seems like every week there is a new entrant into the US deposit taking space. Clearly there is an appetite for consumer deposits and banks and fintechs alike are willing to compete for the business. Ultimately, this is good news for the US consumer as never before has there been so many options. The competitiveness leads to both lower (or no) fees and higher yields on banking products. It’s an interesting phenomena as some fees are driven down to zero and there is less differentiation from one product to the next. It’s similar to what we’ve seen in stock trading as the newcomers in the space brought transaction fees to zero and other big firms eventually have had to follow suit. But who will ultimately be the leaders of tomorrow?

The way banks make money today is changing and we’re starting to see a wave of change in consumer banking. Today, most of these deposit products are offering around a 2% APY after falling recently due to the rate cut. Still this beats some of the traditional banks which still get away with paying almost nothing on deposit accounts. It turns out that there is a segment of the population that are set in their ways, but for those willing to make a change these financial firms are collecting deposits online and offer a very quick on-boarding process. In my opinion if you’re a US consumer and earning less than 1% on your savings account you should strongly consider switching to the many reputable product offerings in the market today. Here are some of most recent entrants and unique offerings in this space, all of which offer FDIC insurance.

Santander

The Spanish bank recently announced that they are going to launch a new online deposit platform in the US. Set to launch in the next year, the offering will reportedly pay a higher rate than that of Wall Street banks. The goal for the bank is to access cheaper costs of funding.

Robinhood

Robinhood’s first attempt at a ‘savings account’ fell flat and after ten months they have announced their second attempt. Robinhood’s Cash Managment will pay 2.05% APY as of October 8th. The consumer friendly product has no fees and is currently accepting users via a waitlist. CNBC shares further details.

Personal Capital

[Read more…]

OnDeck Q3 2019 Earnings Results Recap

Today OnDeck reported positive metrics on net income, revenues and their stock repurchase program.

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OnDeck’s Q2 financial results included a handful of interesting updates from the company, but the news of losing JPMorgan Chase as a partner overshadowed any positive news coming out of last quarter. Today the company announced their Q3 2019 financial results which investors have responded positively to, sending the stock up 15% at the time of this writing.

The company continues their profitability streak, posting net income of $8.7 million (up from $4.3 million in Q2) in the third quarter. Gross revenues also grew 9% to $112.6 million. This is a result of higher interest and finance income as the portfolio has also grown.

Originations were $629 million, up 6% from the prior quarter and down 3% from the prior year period. This is a result of OnDeck’s tightening of underwriting criteria along with market dynamics. Interestingly, lines of credit account for 21% of OnDeck’s total loans and finance receivables, up from 15% last year. [Read more…]

The Meteoric Rise and Spectacular Fall of Peer to Peer Lending in China

The world’s largest peer to peer lending market may soon cease to exist

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When we started LendIt in 2013 I had no idea that China was a hot bed of peer to peer (p2p) lending. But there I found myself talking with several leaders from the Chinese p2p lending industry at the first LendIt back in June 2013. We did no advertising in China but many got wind of the event and traveled to New York City to be there. It was then that I found out the massive scale the industry had already achieved in the world’s most populous country.

I first wrote about the Chinese p2p lending industry later that year and introduced the west to CreditEase, the company that was the largest p2p lending platform in the world. Over the next couple of years the industry thrived with thousands of platforms launching and the total loan volume skyrocketing to over $150 billion in 2015, which was four times the loan volume of 2014. In hindsight, we should have known that kind of growth in a lending industry is not just unsustainable, it is highly risky.

China’s Biggest Ever Financial Scandal

We got the first inkling that something was not quite right when China was rocked by the biggest financial scandal in its history. Ezubao, one of China’s largest p2p lending platforms, collapsed as it was revealed the business was nothing more than an elaborate Ponzi scheme. Around 900,000 investors collectively lost $7.6 billion in what was the second largest Ponzi scheme the world had ever seen (Madoff being the largest).

But the industry rationalized this away as just one bad apple. The regulators had just announced draft rules for the industry at the end of 2015 and there was a sense that the strong platforms would adapt and continue to perform well. And that is what happened for the next year or so. But by 2018 serious problems began to emerge. That year ended up being the year of reckoning for the industry.

The p2p lending industry had grown to around 4,000 platforms at its height which everyone agreed was not a sustainable number. The weak platforms were not going to make it but the trouble was as they failed they often took investor money with them. While there was definitely some fraud there were also cases of platforms that meant well but were simply unable to make online lending work.

Life Savings Invested in P2P Lending

[Read more…]

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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