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LendIt Fintech News: Daily Coverage of Fintech & Online Lending

Upstart Riding Automation and Bank Partnerships to Profitability

The online consumer lender has turned the corner in profitability during a year of strong growth

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Dave Girouard, CEO of Upstart, speaking at LendIt in 2017

Upstart has been quietly doing something that many others have found difficult: building a profitable online consumer lending business. I caught up with Upstart CEO, Dave Girouard, recently to talk about the state of his business and where he sees the biggest opportunities today.

To date Upstart has issued $2.8 billion in consumer loans which equates to 230,000 loans and they are doing about $180 million a month right now. They will end the year with double the loan volume they did last year. But Dave was quick to point out that they are not all that focused on loan volume. The metric they are most focused on is profitability. They have just completed five profitable months in a row and are now generating $1-2 million a month in profits. They expect to be profitable on a quarterly basis going forward.

How have they been able to move to profitability? One contributing factor is automation. Given Dave’s background (and many others on the team) at Google they have been very focused on technology at Upstart from day one. They have created an underwriting engine that is built for automation. Today, two-thirds of their loans are entirely automated and the median time to close a loan deal is 28 minutes. Most of that time is waiting for the user to respond, Dave said it would take less than five minutes if the customer was completely responsive. Manually underwritten loans have a median close time of 50 hours, still a pretty good user experience. They have also kept customer acquisition costs in check as their cost per loan has remained stable even as loan volume has accelerated.

Upstart made a name for themselves as being the first lending platform to leverage artificial intelligence and machine learning in their underwriting. They have also always used alternative data to build their models and have used this data in new ways. To provide investors comfort that all this was blessed by the regulators they sought and received a no-action letter from the CFPB in 2017. They continue to report to the CFPB on a quarterly basis. [Read more…]

Cross River Bank Raises $100 Million Led by KKR

Fintech pioneer Cross River Bank has closed a large funding round led by one of the world's leading private equity firms

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Today, Cross River Bank (CRB), one of the leading banks supporting marketplace lending platforms, has announced they have closed a significant funding round, $100 million, led by private equity firm KKR. This is by far their largest funding round, dwarfing the $28 million they raised in 2016 and is a validation of the unusual path the New Jersey-based community bank has taken.

Chairman and CEO Gilles Gade shared his comments on this funding round in their press release:

We are very pleased that our growth and progress has the endorsement of leading investors such as KKR. We also welcome new investors CreditEase and Lion Tree Partners and are especially grateful for the continued confidence of our previous investors Battery Ventures, Andreessen Horowitz and Ribbit Capital. This is a very strong signal that we continue to execute on our plan and are poised to take Cross River through its next phase of successful development here in the U.S. and across the globe.

Started in 2008, which in itself was an interesting time to start a bank, CRB first got involved in fintech very early on when they partnered with GreenSky on home improvement loans. They have since become the go to bank supporting many leading marketplace lending platforms including Marlette, Upstart, Affirm and RocketLoans just to name a few. While maintaining their community banking roots they have become one of the driving forces in the growth of the marketplace lending space with their banking-as-platform solution. They have also become a significant player in broader fintech working with leading players such as Coinbase and Transferwise on payment processing.

CRB is also a founding member of the Online Lending Policy Institute,  a nonprofit public policy organization based in Boston, MA whose mission is to encourage responsible innovation in online lending. Their leadership in that organization has helped the industry connect with regulators and lawmakers in Washington.

It is interesting to me that in his quote in the press release Gilles ends with “and across the globe”. I don’t know of any other community bank in America that has global aspirations but with CRB’s success in this country it seems that global expansion is on the horizon. However they choose to grow the company they now have a well funded war chest with which to attack any new market.

CommonBond Acquires NextGenVest to Help Reach Generation Z

CommonBond has acquired the AI-powered advice platform NextGenVest to reach the next generation of college students

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CommonBond CEO David Klein with NextGenVest CEO Kelly Peeler

CommonBond, best known as a leading provider of online student loans, has made its second acquisition, NextGenVest, an artificial intelligence powered advice platform for Generation Z. NextGenVest helps high school and college students in New York, Chicago and Philadelphia with their college financial needs through a combination of human “money mentors” and AI-powered suggestions delivered entirely through text messages.

I caught up with CommonBond CEO, David Klein, yesterday to talk about this deal. The first thing I asked him was why? Why did his company acquire NextGenVest? David said, “we have not seen a company this good at engaging with Generation Z. Tomorrow’s millennials are Generation Z and it is important for CommonBond to get engagement with this new demographic early.”

He pointed out that 15% of all college bound seniors in New York, Chicago and Philadelphia use the NextGenVest service. And the engagement is extraordinary. Over 50% of all interactions between NextGenVest and their users are inbound from the users. What this means is that these high school and college students are reaching out proactively to NextGenVest for advice.

While CommonBond plans to roll this service out nationwide what David is most excited about is integrating the tech from NextGenVest into other areas of CommonBond business. In fact, David told me they have already started to do just that. The deal closed last week and they have hit the ground running integrating the staff and are planning a roll out of the tech into other business lines.

David emphasized the importance of reaching the new generation of potential customers early. This is what NextGenVest provides. They have 65,000 customers most of whom are in high school or college today. This is a huge potential channel for CommonBond and they hope to strike up a relationship with many of these people. Applying for college today is notoriously complex and a service like NextGenVest helps high school students wade through the masses of information needed to successfully land college admission. And it will also help them navigate the financial side of college, helping with financial aid, scholarships and, of course, student loans.

The financial details of this deal were not disclosed, all that David would say is that both sides were quite happy with the outcome. The acquisition is the second for CommonBond, they also acquired Gradible, a personal finance platform, back in 2016.

P2P Lender Zopa Granted a Banking License in the UK

The world first P2P lender has achieved another first with the approval of a banking license from regulators in the UK

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CEO of Zopa, Jaidev Janardana, speaking at LendIt Fintech Europe 2018

Back in 2005 Zopa quietly launched their P2P lending platform in the UK, the world’s first. It was the start of a lending revolution that has moved on to all corners of the globe. Today, a new chapter begins as the company announced that regulators have approved Zopa’s banking license. With that Zopa achieves another first: becoming the world’s first combined peer to peer lending platform and digital bank.

When Zopa first announced that they were applying for a banking license back in November 2016 some criticized the move. The company was started as an alternative to banks and by becoming a bank some critics thought they were selling out their original vision. But Zopa brushed off the criticism with CEO Jaidev Janardana arguing that most large banks were not giving consumers what they wanted. Zopa had built a culture of customer centricity and they wanted to extend that into a new kind of bank (for more see Jaidev’s keynote at LendIt Europe 2017 as well as his fireside chat interview from this year’s event).

Zopa has officially been granted a banking license with “restricted approval” which means that it can’t launch just yet. They will enter what is called the “mobilization phase”, this is a normal part of the approval process where it needs to “meet conditions set by the regulators, including testing our new products”. Once it satisfies these conditions Zopa will be granted a full banking license.

[Read more…]

SoFi Cutting Jobs in Their Mortgage Business

SoFi is cutting 7% of its workforce as part of a restructuring in its mortgage division

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SoFi CEO Anthony Noto speaking at LendIt Fintech USA 2018

Late Friday Bloomberg reported that SoFi was cutting 7% of its staff, or around 100 jobs, in the company’s mortgage department. This is due to a change in strategy as to how they underwrite mortgage loans. Rather than underwrite loans themselves, as they have done since launching their mortgage business back in 2014, they will outsource the underwriting to a partner.

From the Bloomberg piece:

Under its new structure for its mortgage division, SoFi employees will still get the customer to the pre-approval stage, but will no longer underwrite the loans, though the underwriters will be given SoFi criteria to adhere to. Borrowers will continue to deal with the fintech startup throughout the process, although the title, appraisal and closing will be done by a partner. The strategy will help the company reduce the risk on its books, the person said.

I reached out to SoFi for comment on these changes and they responded with this emailed statement:

Buying a home is a key ambition of our members, and we want to be there to help them. Fifty percent of our mortgages to date have been with existing members. These changes put us in a better position to help even more members by offering competitive rates and a smoother digital experience. In fact, we believe these decisions will allow us to double our mortgage business in 2019 when others will likely be contracting.

There is obviously a lot of cost involved in keeping a full mortgage underwriting division on staff and SoFi has decided this cost is not worth it. The mortgage business is notoriously competitive and with rising interest rates overall demand for mortgages is expected to decline. Maybe with a lower cost structure SoFi will be positioned better to compete and it will allow them to grow the business overall. They are still going to own the customer and will control the user experience without having to do the underwriting themselves.

This is the second round of layoffs for SoFi this year with the first round coming in late January that affected 5% of the workforce. That was also in the mortgage division. Despite that the company has grown overall headcount this year.

Wrap-Up of LendIt Fintech Europe 2018

Key themes and discussion topics that emerged from LendIt Fintech Europe 2018, our two day event held in London last week

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Last week the European fintech industry gathered in London for the fifth annual LendIt Fintech Europe event. While there were many key themes that emerged from our 2018 event, given the state of politics in the UK right now, one big theme hovered over them all: Brexit. As we got underway last Monday at the Business Design Centre it was not clear that the UK Prime Minister would make it through the day with her job intact.

Of course, the industry moves on regardless of the political events of the day so all the attendees got down to business just like they have done at previous events. Key themes that emerged over the two days were the continued inroads incumbent banks were making in fintech, the maturation of bank/fintech partnerships, the importance of open banking initiatives that are in development, and why strong and sensible regulation is critical for the development of fintech. Videos of all the keynote sessions are now posted online but below is a summary of some of the key points made in each session.

Rajesh Agrawal, Deputy Mayor of London, opens LendIt Fintech Europe 2018

Kicking things off this year was Rajesh Agrawal, the Deputy Mayor for Business at the City of London. He talked passionately about the opportunity that London provides for business and the fact that there is an entire ecosystem setup here to support fintech entrepreneurs. With London you have a city that combines the best of New York, Silicon Valley and Washington DC all in one place. He made the interesting point that the future is all about connecting global cities and that cities are more important than ever before. Great cities like London can help enable these connections. He closed with the simple message that London is open for business and regardless of what happens with Brexit it will remain open.

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LendingClub Reaches $1bn in CLUB Certificate Issuance

In less than a year the online lender reaches $1bn in their unique CLUB Certificate program.

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LendingClub has seen issuance of their new CLUB Certificate reach $1bn in less than a year after first announcing the pass-through security product last December at their investor day. The CLUB Certificate was created to make it easier for institutions to invest in LendingClub originated loans.

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PeerIQ’s Q4 2018 Lending Earnings Insights Report

PeerIQ's latest Lending Earnings Insights Report points to a strong economy but bank and card issuer CEOs are cautious about being late in the credit cycle.

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PeerIQ released their Q4 2018 Lending Earnings Insights Report which points to a number of themes showing the economy is strong but CEOs are striking a cautious tone. Delinquencies and defaults continue to be low as consumers have seen their wages rise and taxes drop. Lenders are increasing reserves as they anticipate credit to renormalize in the near future, saying the economy right now was too good to be true.

The report covers earnings reports from big banks and fintech lenders. Stock performance was mixed with the flattening yield curve causing banks and card issuer stocks in particular to suffer. Companies covered include Enova, LendingClub, One Main Financial, OnDeck, GreenSky, Bank of America, Citibank, Goldman Sachs, JP Morgan Chase, Morgan Stanley, Wells Fargo, Capital One, Discover, Synchrony and American Express.

One of the growing trends has been the pull back by banks lending directly to consumers and small businesses. Banks are instead increasing funding lines to non bank lenders, credit facility volume has grown 6x since 2010. The growth in originations from non bank lenders has forced regulators to look at them more closely, while the FDIC is considering granting ILC charters to non banks.

Broadly across the credit spectrum fintech lenders have seen delinquencies and charge offs remain at near record lows. All the companies in this segment saw double digit revenue and origination growth YoY. Lenders have started to raised borrowing rates, though not at the same pace as the Fed Funds Rate. The flattening yield curve has raised the cost of borrowing on credit facilities, causing margins for lenders and investors to be compressed.

Big banks experienced another strong earnings quarter as all covered in the report saw double digit increase in earnings. Revenue drivers vary from bank type to bank type. Big banks covered within the report saw deposits rise due to a better digital banking experience, an integration between wealth and banking products and a retail branch expansion. As a group the banks are growing, albeit slower than in the past, through digital means and are focused on the long term potential of products they are currently building.

Credit card issuers all saw their earnings grow by more than 20 percent YoY. Most card issuers also saw growth in revenue and their loan books. Growth in total allowances for losses outpaced loan growth, pointing to the fact that most card issuers see a credit normalization coming. Card issuers have used the partnership model with stores like Walmart, JC Penney and Lowes to grow revenues.

Overall economic health, low delinquencies and low charge offs show that the credit space is doing quite well. Though the report points out that most of these companies do not expect this environment to last forever, they are in the midst of preparing for a change while they keep growth humming along.

Why Mike Cagney’s Second Act Could Be a Game Changer for Fintech

Mike Cagney and his team have created groundbreaking technology bringing the entire lending process on to the blockchain

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You have probably heard of Figure, Mike Cagney’s second act in fintech. But you might not have heard of Provenance, the new blockchain protocol that Mike and his team have created. In this article I will share why I think both initiatives are important to the future of fintech.

I caught up with Mike last week to discuss the progress he is making with Figure and Provenance, and the opportunity he sees in front of them.

The Figure Home Equity Loan Plus

Figure launched their first product over the summer called Home Equity Loan Plus. They claim it is the fastest home equity loan on the planet with approvals in five minutes and funding in just five days. Customers can borrow up to $100,000 with APRs starting at 5.49% and loan terms of five, seven, 10 or 15 years. This is an entirely digital origination process, more on that shortly, and no physical appraisal of the property is required which is one way they can make the process so fast.

Customers verify their identity by uploading a photo and an approved ID such as a driver’s license or passport. There is an electronic signature process that involves communicating with notaries in Texas or Nevada via webcam. So far, Mike said, customers have been very happy with the process although it Is obviously early days. He says they are on track to do $15-$20 million of home equity loans in November.

Provenance Destined to be a Real Game Changer?

[Read more…]

CommonBond Partnering With Fifth Third Bank on Student Loan Refinancing

Customers of Fifth Third Bank will be able to refinance their student loans with CommonBond in this co-branded initiative

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Back in March CommonBond closed a $50 million Series D investment that was led by the venture capital arm of Fifth Third Bank, a top-25 bank (by assets) based in Cincinnati, Ohio. Today, we are seeing some of the fruits of that strategic partnership as both companies announce the launch of student loan refinancing for Fifth Third Bank customers.

I caught up with CommonBond CEO David Klein briefly today to talk about this deal. The first thing he said is that this is a co-branded offering between CommonBond and Fifth Third, it is not a white label solution. Until today, Fifth Third Bank had no offering for student loan refinancing and today they have a dedicated page explaining this new partnership. On that page interested customers can click through to a CommonBond landing page and from there they go through the standard CommonBond funnel when applying for a loan.

So, what you have in effect is a large, captive distribution channel for CommonBond who will be sharing some of the economics of these converted leads with Fifth Third. But David was quick to point out that this is just phase one of what will eventually be a much deeper multi pronged relationship. Here is what he had to say in the official press release:

With this partnership we are combining the best of financial technology and banking to make personal finance better for consumers. Both companies value delivering great financial products to customers, building long-lasting brands that matter, and having outsized impact on communities across the U.S.

There has been a flurry of new bank-fintech partnerships announced in the second half of the year but this is one of the first in the student loan space. The reality is that the student loan problem is massive and getting bigger every year. Anything that can be done to relieve at least some of the debt burden should be encouraged. I think every bank will eventually have some kind of student loan offering given the size of the problem. Fifth Third is one of the early adopters here and I expect it will work out well for both them and CommonBond.

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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