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Use Cases and Trends in Artificial Intelligence for Financial Services

A review of where financial services companies are beginning to implement artificial intelligence.

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Artificial intelligence (AI) is everywhere these days as more companies look to automate repetitive tasks to save money and reallocate staff to more meaningful work. We wanted to explore some of the current use cases for AI based technologies in financial services and where the industry is heading in the coming years.

Cut through the hype and you will find financial firms have started to implement AI in a few different areas. Back office operations and data management has been the biggest beneficiary as companies can run algorithms across full data sets and cut out repetitive tasks.

[Read more…]

Prosper Reports Q2 2018 Financials

The company increased originations from the previous quarter while their net loss rose slightly.

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Yesterday, Prosper reported their Q2 2018 results. The company facilitated $867 million in loans for the quarter, up 12% from the prior year period. Prosper reported a net loss of approximately 12.6 million. While this is significantly better than the prior year period of $41.4 million, their losses increased slightly from the first quarter ($11.4 million). Total net revenues for Q2 2018 were $31.7 million, up slightly from the prior year period.

Below is a summary of Prosper’s key operating and financial metrics:

With their recent quarter, Prosper crossed the 1 million loan mark and surpassed $13 billion in loans total. David Kimball, Prosper CEO provided his perspective on the company’s progress related to adjusted EBITDA as well as platform changes in a prepared statement included in the press release:

“For the fifth consecutive quarter we successfully balanced growth with generating positive Adjusted EBITDA…Maintaining a balanced marketplace that provides value to both borrowers and investors remains our highest priority. Throughout 2018, Prosper has been raising interest rates and significantly tightening credit in order to ensure that we continue to provide a fair price for borrowers and a solid risk-adjusted return for investors.”

Prosper also highlighted that they have upsized their committed revolving warehouse facility to $200 million to continue to participate alongside their investors. We’ve seen this elsewhere in the marketplace lending space with LendingClub holding more loans on balance sheet for the purposes of selling these loans to investors at a future date. As of June 30, 2018 Prosper had $116.8 million of loans on their balance sheet held for sale.

You can view Prosper’s full 10-Q report on the SEC website.

How Goldman Sachs Created Marcus To Be a Dominant Force in Consumer Banking

In just two years the Goldman Sachs digital initiative called Marcus has changed the banking landscape

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[Editor’s note: This article was written for our Chinese audience and will be translated into Mandarin and released with several other articles at the Lendit Fintech China conference in Shanghai in September.]

It all began at the home of a senior Goldman Sachs executive in the summer of 2014. A select group of leaders were there to discuss new growth opportunities for the firm. They wanted to start a new line of business where there was a large unmet customer need and where Goldman Sachs could leverage its resources to gain a competitive advantage in the market.

After 145 years serving only the very wealthiest of clients it was decided that they would launch a consumer bank. In reality, they already had a banking license because during the financial crisis they opted to become a bank holding company. But for years they had never really used this to launch any new products. That changed in 2016.

First, there was the launch of GS Bank in April 2016. Six months later Goldman Sachs introduced the world to their Marcus brand. They began as an online lending platform offering unsecured consumer loans up to $30,000 with interest rates ranging from 5.99% to 22.99% (they now offer loans up to $40,000 and rates range from 6.99% to 24.99% as of August 2018). Their big differentiator was offering no fees. There was no origination fee for the borrower, no prepayment fees and no late fees.

They gained traction very quickly. They crossed $1 billion in total originations within eight month of launch. At the end of their first year they were at $1.7 billion. At that time they brought their deposit business under the Marcus brand, it was formerly branded under GS Bank. Now when you go to the Marcus website you are presented with two options: personal loans and savings accounts (which includes certificates of deposits).

[Read more…]

An Inside Look at the GreenSky-American Express Partnership

The multifaceted partnership is the first of its kind between a leading fintech platform and major credit card company

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We heard on Monday that newly public fintech company, GreenSky, has partnered with American Express in a wide ranging deal. While we have seen some interesting fintech/bank partnerships over the last few years this is one of the most significant. It is also one of the first examples of a company that facilitates installment loans partnering with a large credit card company.

I reached out to both GreenSky and American Express to find out more. But before I get to our conversations there let’s tease out the three ways in which GreenSky is partnering with American Express.

  1. Select American Express merchants will be able to offer financing through GreenSky

American Express merchants will be able to offer GreenSky point of sale financing as an option for consumers. This will happen in the two main verticals where GreenSky operates: home improvement and elective healthcare. Merchants are able to offer financing through the GreenSky Merchant app available for Android or iOS.

  1. American Express consumer card members can apply for an installment loan

This is a pilot project that will be available in the home improvement category in five U.S. cities initially. Consumers will be able to apply for an installment loan through their American Express login. The technology for this program will be provided by GreenSky and development is still ongoing before this will be a production offering.

  1. Access to American Express vPayment

American Express vPayment is a virtual payments solution that provides a virtual account number for each transaction. In this system a token can be provided to a customer for a single use. This obviously makes the digital payment more secure and reduces fraud risk.

[Read more…]

Roundup of Q2 2018 Earnings: GreenSky, OnDeck, LendingClub

We review the three fintech companies that reported earnings today.

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The reality is that most fintech companies today in the US are private. We often learn of key milestones through press releases, but we often don’t get full transparency into what is happening in the business. This is why we’ve always taken great interest in the publicly traded online lenders. Today, OnDeck, GreenSky and Lending Club all reported their Q2 2018 earnings. Below we share the highlights of each from our perspective.

GreenSky

GreenSky went public just a few months ago on May 24, 2018. Their IPO was significant for a couple of reasons. One was the lack of US based fintech IPOs over the last few years and the second was that GreenSky is a wildly successful business. Last year they reported $139 million in net income on revenues of $326 million.

In the second quarter of 2018, the company grew revenue 28.3% to $105.7 million quarter over quarter and adjusted EBITDA was $52.1 million. In the prepared statement as part of the press release, CEO David Zalik noted that crossing $100 million in revenue and $50 million in adjusted EBITDA were milestones for the company. The company also increased transaction volume by 36% with the increase of home improvement merchants and elective health care providers utilizing the platform. Pro forma net income for the quarter was $33.5 million and the company ended the quarter with $236.6 million in cash.

Also of significance was a strategic partnership that was announced yesterday with American Express. This will further Greensky’s reach by accessing merchants who accept American Express. Under the partnership, customers will have access to point of sale loans for large purchases. What’s also interesting is the two companies are piloting a direct-to-consumer installment loan offering to some American Express Card Members. This will be first focused on the home improvement space in select markets, but if this pilot goes well it wouldn’t be surprising to see this partnership being the first example of a fintech and credit card company teaming up to tackle the broader personal loan category.

OnDeck

OnDeck reported net income of $5.8 million for the quarter with gross revenues of $95.6 million, up 10% year over and 6% from the previous quarter. Originations grew to $587 million, up 26% from the prior year period, but down slightly from the previous quarter. The company’s trend of increasing the number of loans funded and decreasing the average loan size continues. [Read more…]

Participate in the Cambridge Centre for Alternative Finance Research Study

Time is running out to include your company in the largest alternative finance survey ever

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Regular readers will know I have long been a big supporter of the Cambridge Centre for Alternative Finance. I think they produce the most comprehensive research on the alternative lending space globally and I have always tried to help them in this mission.

They are winding up their largest survey ever right now. In the past they have produced multiple reports targeting the various regions around the world including: the United Kingdom, Europe, the Americas, Asia and Africa. This year they are combining everything into one big study.

Last year’s America’s report – Hitting Stride –  included survey responses from over 273 platforms from across the region and was widely cited as the very best data available on the growth of the industry. This year’s survey covers activity in 2017, and focuses on shedding light on some of the key trends uncovered in the previous research.

If you have not participated in the survey yet time is running out (while the survey says it closes on July 22nd, they have extended the deadline for another week or so). We need every platform in this country and around the region to participate. To learn more you can read more about this comprehensive piece  in Crowdfundinsider or explore the survey questions before actually answering the survey.

Your platform will be prominently acknowledged and thanked in the report with your logo displayed. Your data will only be analyzed by the Cambridge research team, and will be presented in aggregate format by country and model. No individual platform’s data is therefore divulged.

Once you have gathered all your data please enter it in the survey here. This will help the entire industry. Thank you.

PeerIQ Releases Q2 2018 Marketplace Lending Securitization Tracker

Marketplace lending securitizations reached record highs in the second quarter of 2018.

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Every quarter we delve into the securitizations happening in the marketplace lending space with the help of PeerIQ. They have a free download of their second quarter report on marketplace lending which is full of valuable information about all of the securitizations including commentary on the current state of interest rates and borrowing in the United States.

The upward trend continues with total Q2 securitization issuance reaching $5 billion, a high water mark for the industry. Securitizations grew 36% year over year and cumulative issuance now totals $38.4 billion across 126 deals.

With rising interest rates, PeerIQ noted that spreads are widening across consumer and student loans:

This is the first quarter where we observe higher all-in costs for issuers driven by rising front-end interest rates and ever-increasing ABS supply, breaking the trend of non-stop spread tightening. Weighted average all-in yields on consumer deals increased from 2.9% to 4.2% QoQ, and on student deals from 3.0% to 4.5% QoQ.

In the past we have commented on the participation of ratings agencies and that continued in the second quarter with all except SoFi’s student loan passthrough securitizations being rated. Another positive data point is the amount of deals getting upgraded. In total, 51 consumer tranches and 67 student tranches have been upgraded. DBRS currently leads in rated deals with $21.1 billion, followed by Kroll ($19.9 billion) and Moody’s ($12.6 billion).

Other notable happenings for the quarter include Freedom Financial issuing their first deal and OnDeck returning to the securitization market. SoFi led issuance with $2.7 billion across a $681 million consumer deal and over $2 billion in student. The SoFi student deals were unrated passthrough structures.

Below is a roundup of the deals that took place during the quarter:

If you’re interested in digging further into the deals and getting additional color on what is happening in the securitization space you can download the report for free on PeerIQ’s website.

How Fintex Capital Enabled the $30M Banco BNI Europa Investment in Upgrade Loans

A unique structure created by Fintex Capital enabled the European digital bank to easily invest in Upgrade loans

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Last month we learned about the new $30 million investment received by Upgrade from the Portuguese digital bank Banco BNI Europa. On the face of it this was not that remarkable, Upgrade has attracted many investors and BNI Europa has demonstrated their commitment to the marketplace lending space with many other investments.

But what caught my attention was the way this deal was structured. In reality BNI Europa did not actually purchase Upgrade loans, they invested in a privately placed bond that was backed by Upgrade loans. This bond was issued by Fintex Capital.

I reached out to Robert Stafler, the CEO and Co-founder of Fintex Capital based in London, to learn more about this transaction. Fintex was founded in 2015 and Robert has been a frequent speaker at our LendIt Europe events so I have gotten to know him and his company reasonably well over the last few years. He agreed to chat with me to explain how their investment structure works.

Fintex Capital SA is the company’s Luxembourg-based proprietary securitization vehicle. They create a bespoke program for every client, one tailored to the specific needs of the client. This is a pass-through securitization meaning there is no fixed coupon on the bond, the bond simply passes through the economics of the underlying assets less a management fee for Fintex.

The Fintex bond is capital markets friendly as it is cleared through Euroclear and has an ISIN number (XS1772189442) so details can be viewed on a Bloomberg terminal. The bond can be increased to as much as $200 million if needed through tap issuance. The loans can be sold directly into the bond which results in no accrued interest leakage unlike the pass-through or cert deals done in the US. Even though this deal just became public in July Fintex has been buying loans on Upgrade’s platform since April and had fully deployed the $30 million by mid-June.

When I asked Robert about exactly what value Fintex provides for investors he had this to say: [Read more…]

The Chinese P2P Lending Sector Facing Severe Challenges Right Now

Many platforms are going out of business but the strong platforms will survive

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My first trip to China was back in 2014 when I was invited to speak at a closed door meeting with Chinese regulators and leading P2P lending platforms. They wanted to learn about the US market and trends I was seeing here at the time.

Back then new platforms were launching pretty much every day as p2p lending became the hot new investment. The number of platforms grew to well over 3,000, a number that everyone agreed was not sustainable. But new platforms kept on launching, attracting both investors and borrowers with relative ease.

Five Platforms a Day Are Failing Right Now

We all knew the party was going to end at some point and it looks like 2018 will be the year of reckoning. According to industry data provider, Wangdaizhijia (loosely translated as Online Lending House), platforms are failing at a rate of around five a day with 114 platforms shutting down between July 1 and July 24.

Many investors are losing their money as platforms either shut down completely or suspend withdrawals. While some platform failures have been due to outright fraud it seems that most have been hit with much higher default rates than expected. As we have learned in this country in recent years underwriting unsecured consumer loans is hard. It requires deep knowledge of consumer credit and even then positive investor returns are not guaranteed.

In a recent article in the South China Morning Post (SCMP) , the head of the Beijing Internet Finance Association, Ning Tang, who is also the founder of CreditEase, was interviewed and they had this to say about him: [Read more…]

BlockFi Secures $52.5mn Institutional Round to Scale Lending

The startup brings in the first institutional round for the space as they look to ramp up lending and marketing.

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Crypto lending startup BlockFi secured more than $52mn in funding from Mike Novogratz’s Galaxy Digital Ventures. The round will be split up; $2.5mn is in equity being led by Galaxy and other early backers and the additional $50mn will be used as a lending facility for BlockFi customers.

BlockFi allows individuals and companies to leverage bitcoin and ether for what they term as low cost USD loans. They have built out an operation focused on risk management, compliance and regulation. They operate in 42 states where they hold lending licenses.

The way it works is crypto holders give custody of their bitcoin or ether to BlockFi who then issues the loan typically on a 12-month loan term. Borrowers make interest only payments monthly and then have the option to pay back or refinance at the end of the loan term. The loan to value of their crypto assets is set at 35% and if the price of the crypto assets fall to a certain point then trigger events occur similar to a margin call.

[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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