Lend Academy

LendIt Fintech News: Daily Coverage of Fintech & Online Lending


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

By 3 Comments

Views: 421

 

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

By 4 Comments

Views: 641

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

By 1 Comment

Views: 333

 

 

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.

By Leave a Comment

Views: 368

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.

By 1 Comment

Views: 191

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

By 3 Comments

Views: 1,559

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…]

My Quarterly Marketplace Lending Results – Q2 2019

My latest quarterly investment results show an overall 6.20% return for the year ending June 30, 2019

By 7 Comments

Views: 1,089

Time for an update on my quarterly investment returns. This is something I have been doing for many years now and I know it is appreciated by many of you. I started out reporting on my marketplace lending investments in Q4 2011 and have provided updates every quarter since then. I share all the details of my LendingClub and Prosper investments as well several other investments I have made in the online lending space.

Overall Marketplace Lending Return at 6.20%*

The upward trend in my returns continued in Q2, making it the fifth quarter in a row with increasing returns. My preliminary return for the 12 months ending June 30, 2019 is 6.20% (one investment is still not final), the best I have achieved since Q3 2017.

My six original accounts at LendingClub and Prosper have all been open for at least seven years so they are very mature accounts that have experienced several turns of capital as I have kept reinvesting over the years. I have separated these out because these were the accounts I had when I first started doing these reports so readers can go back and see how they have trended over time. But as I have said before I am liquidating my taxable accounts here and will focus my investments in consumers loans in my retirement accounts.

Underwriting changes that were made in 2017 continue to bear fruit for my personal loan investments. My six original accounts had a return of 5.48%, a vast improvement from the 2.34% return of just a year ago, and back to near where it should be. In today’s benign credit environment I would still like to see returns in the 6-7% range for personal loans and we are headed in that direction.

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

[Read more…]

The Current State of the Installment Loan Sector

We look at the major players in the consumer installment loan space and discuss trends over the last decade

By Leave a Comment

Views: 777

In the last month I’ve delved into the real estate fintech market and the small business lending space. The vertical that really kickstarted the online lending space, though, was personal loans, in particular installment loans. There were a few trends that led to the personal loan space taking off.

It was a much easier proposition for the first companies to tackle given it was a product with mass market appeal in a vertical largely ignored by the banks. The idea was simple, to lean on traditional underwriting techniques but bring the product online for a better customer experience.

The companies early to this space, LendingClub and Prosper were able to make it through the financial crisis relatively unscathed. While they were small at the time, their relatively conservative approach to underwriting served them well in the years to come. Some of the best years of returns for investors on LendingClub and Prosper came as the US began its recovery. The basic trend I saw at the time when I first became interested in fintech was that bringing loans into the digital age was inevitable as consumers became increasingly comfortable with transacting online. This has proved true, though at a slower pace than I originally anticipated.

Fast forward to today and the online personal loan market has grown quite significantly. What’s interesting is that the products have remained similar throughout the years. Beyond perhaps a few exceptions, the fintechs and now banks alike typically offer fixed loan terms of 3 or 5 years. In addition, direct mail still makes up a significant amount of marketing dollars for many players in the space. In the digital age this is quite surprising and something that I think will continue to shift slowly.

The Fintech Lenders

LendingClub, despite having challenges in 2016 is now the leading personal loan provider in the US. Other players fill the gaps, targeting almost every credit profile imaginable. We have companies like Avant and LendingPoint which focus on near prime consumers. LendingClub, Prosper and Upgrade have focused increasingly on prime and super-prime consumers. Mixed in we have companies like Upstart and SoFi who have catered to millennials and those who may have a thin credit profile but would otherwise be considered prime consumers. SoFi in particular is an interesting case as they look to become a household name, recently acquiring the naming rights to the NFL stadium being built in Los Angeles.

The subprime segment is still less competitive than other areas but it has also proven a difficult place to make money. Leaders here include Opploans, LendUp, Elevate and Enova. In many ways this is where the most innovation has been happening in the consumer lending space with automated underwriting and super fast loan disbursement.

The great equalizer in the industry has been the advent of aggregator sites like Credit Karma and LendingTree. Never before have consumers been able to shop around for the best rate with just a few clicks. This has meant that these online loan providers have had to look at other ways of differentiating and SoFi in my opinion has been the most successful in this area by being the first to offer a large suite of banking products. It is no longer good enough to have an online loan application, which means that alternative ways of customer acquisition have become more important. We’ve even seen companies pivot on their original business model. Upstart and Avant’s Amount launched lending as a service platforms, powering personal lending at banks around the country. While there are some amazing options out in the market today, the reality is that banks still have a lions share of the customers.

Worth mentioning is underwriting which is a key differentiator for many of these firms versus the incumbents. Upstart has been most forthcoming about their techniques receiving the CFPB’s first no-action letter allowing them to use alternative underwriting techniques. Here is a great update on the progress they have made in this area. It is companies like Upstart in my opinion who will pave the way of offering better pricing and expanding credit which is a win for the American consumer.

The Big Banks Play Ball

The turning point in the market from my perspective came when some of the big banks finally took action. Most notably this includes Goldman Sachs with the launch of Marcus, their consumer facing bank. Other banks, especially smaller ones have made incremental steps in offering an online installment loan, sometimes with the help of a fintech as mentioned above.

Marcus stands out as their entrance into the market was fast, albeit late compared to when the fintechs first began to offer loans. Marcus first began offering loans in October 2016, and crossed the $1 billion mark in just eight months. The nature of the way they entered the market didn’t come without cost as it was recently reported that they have lost a total of $1.3 billion on their consumer bank. This was a result of heavy investments in cloud infrastructure, purchasing startups, hiring and building out call centers etc. In addition the rumors are that their loan portfolio has reportedly underperformed compared to their competitors. Still, as a customer myself through their savings product I think Marcus has a bright future over the long haul as they have done what many other banks have shied away from.

Conclusion

In some ways the personal loan market has experienced significant changes over the last decade but in other ways it seems as though there should have been more innovation given some of these companies have been around for quite some time. I think there are still challenges for banks and fintechs alike to overcome, namely offering more consumer friendly and more unique products. We also haven’t yet seen autonomous finance, offering a product to save a consumer money before they even have to apply. However, these companies in aggregate have played a pivotal role in saving consumers money in the form of debt consolidation loans, as consumers have been able to move balances from other high interest debt like credit cards into installment loans.

LendIt Fintech Europe 2019 Conference Highlights

Wrap up of sixth annual LendIt Fintech Europe event that took place in London last week

By Leave a Comment

Views: 472

We have just wrapped up what I think has been the most successful European conference LendIt has ever had. We hosted LendIt Fintech Europe 2019 at the Business Design Centre again and the place was buzzing with people both days. We attracted a great mix of people, many of whom took advantage of the Brella app, where over 2,000 one on one meetings occurred.

For the second year in a row there were major developments in Brexit during the week of the conference. But I wouldn’t say Brexit dominated the conversations at all, people have become jaded with the entire thing and just want it over with. So, the talk was all centered around fintech, the maturation of the industry and what we can do to drive it forward.

I spent most of my time in the content, mainly the keynote room which converted into the Lending Innovations track in the afternoon. We recorded videos for every session in the keynote room and they are all available to watch now on the LendIt site. Here are some of my highlights from the event. [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.

Recent Editorials