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LendIt Fintech News: Daily Coverage of Fintech & Online Lending



OnDeck Announces Lending Technology Subsidiary

OnDeck has split their OnDeck-as-a-Service offering into a new company.

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OnDeck has been powering JPMorgan small business loans through their OnDeck-as-a-Service offering since late 2015. OnDeck has been keeping details of the partnership close, but their CEO Noah Breslow has hinted that they would be announcing a new bank partner soon. Preempting that announcement, the company announced today the launch of a new subsidiary that will pursue these partnerships.

The wholly owned subsidiary called ODX is currently hiring and some OnDeck employees have moved over to support the new venture. In an American Banker article covering the news, Breslow stated, “This is about signaling our commitment to the market, and really scaling up.”

Brian Geary, who was vice president of OnDeck’s partnership program will be president of ODX. What’s interesting is that while the initial focus will be powering online small business lending, the firm may expand into other asset classes according to Geary.

Just a few weeks ago, we wrote about Avant’s rebrand of “Powered by Avant” to a new name, Amount. Amount has similar goals on the personal loan side while Avant will still offer loans themselves, just like OnDeck.

Both companies previously worked with bank partners, but these moves show a renewed focus on this aspect of their business. Perhaps this is a sign of the times of banks warming up the idea of partnering with fintechs to power their lending programs.

Below a quick video of Brian Geary and Noah Breslow introducing the new platform as a service company. You can learn more by checking out https://www.odxsolutions.com/

Talking Regulation at the Online Lending Policy Summit

Regulators, lawmakers and leaders in the online lending industry come together in Washington for the third annual Online Lending Policy Summit

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Craig Phillips, Counselor to the Secretary of the US Treasury

Last week I was in Washington DC to attend the third annual Online Lending Policy Summit. This is the annual get together in Washington of the Online Lending Policy Institute where regulators, lawmakers and the industry come together to discuss regulatory frameworks and responsible innovation.

The big topic of the day was the OCC’s Special Purpose National Bank Charter also known as the Fintech Charter. The topic was laid out for the audience by the first keynote speaker, Grovetta Gardineer, the Senior Deputy Comptroller for Compliance and Community Affairs at the OCC. She talked about the history of the OCC going back to 1863, with the National Banking Act, when the dollar supplanted state currencies as the sole currency of the United States, a revolutionary idea back then. Ms. Gardineer reaffirmed the authority of the OCC to introduce a national fintech charter and talked about how companies should proceed if they are interested. While she would not comment on specifics she did say that the OCC is currently having preliminary conversations with fintech companies but no formal application has been received yet.

The new head of the CFPB’s Office of Innovation, Paul Watkins, talked about the importance of the regulatory sandbox concept. He was one of the architects of the Arizona fintech sandbox and he is bringing that knowledge with him to Washington. He talked about the two main tools to help facilitate innovation at the CFPB: their trial disclosure program and the no action letter. The only recipient so far of a CFPB no action letter was Upstart so it was fitting that Alison Nicoll, General Counsel at Upstart, came on stage to direct the Q&A after Mr. Watkins presentation. He said he would like to see increased cooperation between states and the federal government when it comes to sandboxes. He also said it is very rare to see fraud occur within a sandbox as fraudsters tend not to want to enter a collaborative relationship with a regulator.

[Read more…]

Two Fintechs Make TIME Inaugural Genius List

Oportun and CommonBond are among the distinguished companies making the list.

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Last week TIME released their “TIME’s Genius List” for 2018, which includes 50 businesses inventing the future. This is the first annual list for the media company which came up with the list through a nomination process through editors and correspondents followed by evaluation of originality, influence, success and ambition.

Making the list are major companies spanning every industry such as Amazon, Apple, Netflix, SpaceX, Spotify among many other recognizable names. CommonBond and Oportun were the only two fintech companies that made the cut.

Oportun is a mission based lender working to further inclusion in financial services and CommonBond is working to help solve the student loan crisis. To be recognized by a company as reputable as TIME speaks volumes for these companies given the competitive nature of financial services. Congratulations to both for making the list, they are in pretty impressive company.

PeerIQ’s Q3 2018 Marketplace Lending Securitization Tracker

Total issuance across the marketplace lending sector now stands at $41.9 billion across 134 deals.

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Every quarter we look to PeerIQ to give us the pulse on the marketplace lending securitization market. Today they released their report for Q3 2018. A total of eight marketplace lending securitizations were issued in the third quarter, totaling $3.5 billion. This is the fifth highest level of quarterly issuance which is noteworthy given that the summer is typically a slower period for issuance. This is an increase of 35% from the prior year period.  It’s hard to believe that total marketplace lending issuance to date stands at $41.9 billion across 134 deals.

There has been a shift with spreads tightening and yields falling on new deals, a reversal from prior quarters. PeerIQ noted that all-in yields on consumer deals decreased 2 basis points from 3.72% to 3.7% and student deals decreased 100 basis points from 4.5% to 3.5% over the previous quarter.

Ratings agencies have also continued to upgrade deals with 52 consumer tranches and 67 student tranches. Credit enhancements levels have deteriorated in 8 SME, 4 consumer and 2 student loan tranches.

Not surprisingly, SoFi continues to lead the way in issuance and made up over half of the issuance in Q3 2018. at $1.8 billion. ($546 million in consumer and over $1 billion in student)

All deals in the quarter were rated with DBRS leading in the rating agency league table, followed closely by Kroll. DBRS leads with student loan securitzations ($14.2 billion) and Kroll leads in consumer rated deals ($20 billion). Citigroup, Deutsche Bank and Credit Suisse combined make up 57% of marketplace lending transaction volume. PeerIQ noted that both Citi and Credit Suisse are increasing their activity in the fintech space with Credit Suisse offering risk retention solutions on securitizations.

PeerIQ also discussed the current state of the economy. Unemployment is low and the economy grew by 4.2% in Q2 2018. All signs point to a healthy US consumer who has a strong appetite for debt. Consumer credit outstanding reached an all time high of $3.9 trillion in July. The Fed also has continued to raise rates this year, with 2-3 expected for next year. However, many are watching the spreads between long and short term borrowing which in the past has been indicator of a recession. With more rate hikes on the way it is expected that we will see an inverted yield curve.

If you’re interested in learning more about the current trends in the securitization market you can download PeerIQ’s Q3 2018 Marketplace Lending Securitization Tracker for free.

Marcus Scaling Back Originations Plans for 2019

The Goldman Sachs unit is reportedly concerned about where we are in the credit cycle so they are scaling back growth

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Source: Bloomberg

There was an interesting article in Bloomberg yesterday on Marcus. Bloomberg cites sources claiming that Marcus will be scaling back on its origination goals for next year. Now, we don’t know exactly what the origination goals were or what they have been scaled back to, we only know that their origination goals are now less than originally planned.

As we reported last year Marcus was the fastest company ever to $1 billion in loan originations, they passed that milestone in just eight months. Since then they have continued this frenetic pace, passing $4 billion in Q2 of this year, in under two years. No company has ever grown their personal loan book so quickly.

From the Bloomberg piece:

The reduction in 2019 plans is based on current market conditions for consumer lending and could still change, said the people, who didn’t provide exact figures. A spokesman for Goldman Sachs declined to comment.

It is not surprising that they are putting the brakes on somewhat. We are very likely late in the credit cycle and Marcus wants to get ahead of any possible downturn. They hold these loans on their own balance sheet so we don’t have much of a window into loan performance so far. The Goldman Sachs CFO did say that defaults are running at around 5% and other Marcus executives have said that defaults are in line with expectations.

I don’t think this changes Goldman’s approach with Marcus. The new CEO, David Solomon, has indicated his commitment to the online bank as an important part of Goldman’s future growth. It is good not to get ahead of yourself, we have seen what can happen when online lenders put origination growth as the major focus. It is very easy for underwriting standards to slip in the pursuit of ever more borrowers.

We should find out more on the Goldman Sachs Q3 earnings call coming up soon. But this pullback in growth is probably a good thing for Marcus in the long run.

Square Launches Point of Sale Consumer Installment Loans

In their first foray into consumer loans Square Installments will offer loans from $250 to $10,000 with terms up to one year

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Last week we learned that Square, best known for their small business credit card processing service, is getting into the consumer loan business. Lending is not new to Square, they launched Square Capital in 2014 to help their small business customers get access to capital. But they have never offered a financing option direct to the consumer until now.

While the typical transaction on Square is small they had more than 36 million transactions larger than $250 in the past year. And these are the transactions they are going after with their new Square Installments product.

Loans will range from $250 to $10,000 and will have terms of three, six or twelve months. Interest rates will range from 0% – 24% APR. The application process is fairly simple with applications able to be completed in store on the customer’s own phone and most applications will be approved or rejected instantly. Square takes on the credit risk as the customer pays the loan back to Square directly and the merchant receives the full amount of the sale.

The way it works is that the customer, once approved, is given a virtual credit card number to provide to the merchant to process the transaction and trigger the loan. It is interesting that they quote APRs starting at 0%. Given that Square will be making significant income on the merchant processing fee I could see how offering a super prime customer a 0% loan could make sense for them in certain situations. [Read more…]

Reports Share Insights from Leaders in European Fintech Scene

LendIt has produced three reports which shine light on three major markets in Europe: France, Germany and the Nordics

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This November we will host our fifth installment of LendIt Fintech Europe in London. Although London is most often referenced as the fintech hub of Europe, the reality is that there are interesting things happening across Europe. To highlight the trends outside of the UK, the LendIt team has produced three reports which share perspectives from fintech companies who operate in these regions. Below is a summary of each with accompanying links to download the free reports.

The Nordics

What many people don’t realize is that Denmark, Finland, Iceland, Norway and Sweden together make up the 10th largest economy in the world. In 2017, fintech received the highest percentage of investments in the region. The Nordics are home to well known fintech companies iZettle and Klarna but there are many other names getting traction. In this report we share perspectives from Brocc, C Finance, Copenhagen Fintech, Fellow Finance, Finopti, Flex Funding, Lendify, Monner, Tieto and Tink.

Download the Nordic Report to learn more

Germany

The German market received $650 million in fintech investments in 2015. However, the market is lacking in late stage funding for fintech companies. This is partially related to the fact that Germany doesn’t have one fintech center. Rather, Berlin is where many of the regulators and startups are based, but Frankfurt is where the investors and banks reside. Those who shared their perspective also noted that regulation is a main challenge in the market as the regulator, BaFin, treats fintech companies the same way as other financial service providers. BaFin does however provide some guidelines to support fintech companies. In this report you can read other perspectives from representatives of aixigo, Bitbond, creditshelf, Deposit Solutions, Exporo, FinLab, Funding Circle Germany, KREDU, Raisin, Spotcap, Startuprad.io, and Varengold Bank.

Download the German report to learn more

France

The French market is experiencing significant growth in fintech although off of a smaller base than other geographies. €240m was invested in French fintechs in all of 2017, but funding in Q1 2018 alone was €140m. Several respondents noted President Macron’s aspiration to make France a tech hub with the creation of a €10bn fintech startup fund. Respondents noted that regulation could move faster and there are also challenges around user awareness and adoption in the country. ClubFunding, Credit.fr, Early Metrics, Euratechnologies, Financement Participatif France, Finexkap, Hiive, Invyo, Kramer Levin, Lendix and MIPISE all participated in our French fintech report.

Download the French report to learn more

Get the Best Price on LendIt Fintech Europe

As always Lend Academy readers receive special pricing on our events. Enter the code LENDACADEMYVIP at checkout to receive 15% off your ticket.

Our next price break ends this Friday, October 5. You can save £200 by registering today. We hope to see you in London on November 19th and 20th.

Register for LendIt Fintech Europe 2018

Petal Card Announces $34 Million Round on Launch Day

A new kind of credit card launched today with a fresh round of funding.

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A majority of fintech companies today focus on providing faster and cheaper financial products to already well-served Americans. While this is a noble cause that has resulted in vast improvements for consumers in recent years it only scratches the surface of what is possible with technology today.

Petal, a startup aims to deliver on what we’ve often called the real promise of fintech: financial inclusion. The company describes itself as “credit with a conscience” and announced a new fundraising round of $34 million on the same day that they officially launched their credit card product to the public. Backing the vision is Jefferies and Silicon Valley Bank.

The funding will aid the roll-out to a waitlist which includes 100,000 people. The card is aimed at the tens of millions of Americans who have no credit score at all or a short credit history.  According to Petal’s website:

If you have a credit history – that’s great, but even if you don’t, we can use the money you make and the bills you already pay to help you qualify.
The Visa card boasts no overdraft fees, late fees, international fees, or annual fees. While the company aims to help users build their credit instead of debt, they have also taken a customer-centric approach by providing the dollars alongside the interest rates you’ll pay when you do carry a balance. Here is how the company compares itself to the competition:

Petal card users are usually in their 20s and make between $30,000 and $70,000 per year. The product is tailored to those who are looking to get credit for the very first time as opposed to those looking to rebuild credit. The company takes into consideration savings and spending in order to come up with a credit profile that is much different than a typical credit card company. Approved customers are given credit limits that are ten times higher than what a competitor might offer. The transparency and credit limit is what the company hopes will make up for other types of rewards offered by major card companies. Petal makes money both from the interest paid by customers and transaction charges to vendors.

Conclusion

The biggest obstacle for those who are excluded in the financial system is where to start. The product Petal has built is compelling for first time credit card applicants, but one challenge Petal will face is reaching those who are not part of the financial system today. Many of these people not only lack credit scores, but also potentially any connection with a bank. It’s going to be interesting to watch whether Petal and their competitors are the key for these consumers to enter mainstream financial services.

LendingClub and Renaud Laplanche Put Their Legal Troubles Behind Them

Settlements have been reached with the SEC and Justice Department that were triggered by the 2016 events

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Last week there were significant developments in the legal troubles that have dogged both LendingClub and former CEO Renaud Laplanche since May, 2016. When Renaud was forced to resign as CEO back then, that triggered dual investigations from the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ). Both investigations wrapped up on Friday.

These investigations have been hanging over the industry for more than two years and we have been waiting for their conclusion. So, let’s dig in to each of these settlements in turn to see what they found and what the consequences will be for those involved. For the record, I spoke with both a representative from LendingClub and with Renaud to get background for this story.

LendingClub Advisors, Renaud Laplanche and Carrie Dolan Agreed to Pay a Fine

We will start with the SEC action. In their press release the SEC made the following claims about LendingClub Advisors (LCA), now called LendingClub Asset Management, former CEO Renaud Laplanche and former CFO Carrie Dolan:

LCA and Laplanche caused one of the private funds it managed to purchase interests in certain loans that were at risk of going unfunded, to benefit LendingClub, not the fund, in breach of LCA’s fiduciary duty.  The order also finds that LCA, Laplanche, and Dolan improperly adjusted monthly returns for this fund and other LCA-managed funds to improve the returns they reported to fund investors.

What is most interesting to me is that these are both issues we have known about for some time. In a Form 8-K LendingClub filed with the SEC on June 22, 2016 these two issues were disclosed based on LendingClub’s own internal investigation.

[Read more…]

Funding Circle Goes Public on the London Stock Exchange

Funding Circle is the first UK marketplace lender to IPO, raising £300 million at a £1.5 billion valuation

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It was a landmark day for fintech in London as Funding Circle became the first UK marketplace lender to complete an IPO.  The company raised £300 million at a valuation of around £1.5 billion. They began trading on the London Stock Exchange (LSE: FCH) this morning with an initial price of 440 pence (at the lower end of the forecasted price range of 420p to 530p). While rising early in the day to 460p it closed the exactly flat at 440p.

While you couldn’t call that a blockbuster first day it wasn’t too bad and we have learned from the experience of LendingClub and OnDeck in the US that a great first day really means nothing as to the long term prospects for the share price.

Funding Circle has become a force in small business lending in the UK. In 2017 they were the largest net lender to small businesses in the UK surpassing even the largest banks. They also have substantial lending operations in the US, Germany and the Netherlands with total lending to date over $7 billion globally. They have made it clear that they intend to continue to expand their geographic footprint as time goes on. There is no other lender in all of marketplace lending that has such a large international business outside their home country.

Here is what CEO Samir Desai said in an official statement today: [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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