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Podcast 278: James Paris of Avant

The CEO of Avant discusses the rise of their credit card business, the impact of the pandemic. the Colorado decision and more

December 18, 2020 By Peter Renton Leave a Comment

Views: 340

The rallying cry of the online lending industry has been to eliminate high cost credit card debt. And while tens of billions of dollars of revolving credit has been refinanced with lower cost personal loans we are starting to see some companies branch out into credit cards. Avant is one such company.

Our next guest on the Lend Academy Podcast is James Paris, the CEO of Avant, a position he has held for about a year now. Avant have two main offerings: a personal loan and a credit card with the latter being the fastest growing part of their business.

In this podcast you will learn:

  • How James describes Avant today and a little history of the company.
  • How the idea for their sister company, Amount, developed.
  • The slightly different customer profile for their loan and card products.
  • The impact of the pandemic on their business.
  • How they approach the capital markets side of their business today.
  • The financing structure they have in place for the credit card business.
  • What the impact of the Colorado decision will have on Avant and the industry.
  • How True Lender might play out on the national stage.
  • How they think about financial health and improving the lives of their customers.
  • What James and the Avant team are focused on for 2021.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech Digital, the new online community for financial services innovators.

Download a PDF of the transcription of Podcast 278 – James Paris.

Click to Read Podcast Transcription (Full Text Version) Below

PODCAST TRANSCRIPTION SESSION NO. 278-JAMES PARIS

Welcome to the Lend Academy Podcast, Episode No. 278, this is your host, Peter Renton, Founder of Lend Academy and Co-Founder of LendIt Fintech.

(music)

Today’s episode is sponsored by LendIt Fintech Digital, the new online community for financial services innovators. Today’s challenges are extraordinary with the upheaval affecting all areas of finance. More than ever before, we need to come together as an industry to learn from each other and make sense of this new world. Join LendIt Fintech Digital to connect and learn all year long from your peers and from the fintech experts. Sign up today at digital.lendit.com

Peter Renton: Today on the show, I am delighted to welcome James Paris, he is the CEO Of Avant. Now, Avant has been around for a long time, we’ve had Al Goldstein, the previous CEO and one of the co-founders on the show a couple of times, but James has been in the job for about a year now so I wanted to bring him on just to get an update on the business, what they’re doing. They’ve expanded into some new areas, credit cards, we go into that in some depth, we talk about the impact of the pandemic, we talk about the capital market side of the business, also the Colorado decision early this year that have affirmed the bank partnership model that was really important, we talk about the financial health of their customers and much more. It was a fascinating interview, we hope you enjoy the show.

Welcome to the podcast, James!

James Paris: Peter, thank you, great to be here today.

Peter: Okay, my pleasure. So, you know, I’d like to get this thing started by giving the listeners a bit of background. You’ve got an interesting career to date, why don’t you give the listeners some of the highlights before Avant.

James; Yeah, absolutely. So, maybe I’ll start sort of how I got to Avant kind of in the shortest possible way which is that I knew the one of the original founders and CEO, Al Goldstein, for I guess probably 15 years at the point in time when I joined the company because for me, anyway, life came full circle. Al started out working for me in our Analyst Program at Deutsche Bank when he graduated University of Illinois and I had the pleasure of going back to work for him in the summer of 2015 at Avant.

So, I had been an attorney, I had been doing investment banking and specifically a lot of work around capital markets and funding transactions. So, when I originally came to Avant it was to help the business set up around capital and funding, including the equity raise that we did in the fall of 2015 and then putting together the programs that the company uses with credit facilities and securitizations and loan sales and then sort of went a handful of other directions after that around kind of broader strategic things we were working on.

Peter: Right, right, okay. So then, you’ve been in Avant…. you’ve sort of been in several different roles there over the years and I know you were also with a sister company, Amount, but why don’t you tell us….how do you describe Avant today?

James: Yeah. I mean, happy to do that, I think it’s a great question and maybe I’ll touch a little bit on Amount too and give a little bit of history as well for folks. So, Avant was founded about seven and a half years ago, almost eight years ago now really with the mission of trying to supply responsible, transparent credit products to the near-prime, middle class consumer in the US. And, you know, this was back in sort of the early part of 2013, the financial crisis was still, you know, relatively close in historical proximity and what we were finding was just that banks that have traditionally been able to support these customer categories really were not. While we started to see others making inroads around prime consumers, we didn’t see as much in the near prime space, in particular.

We like that because we thought that although the banks had a big problem with technology in terms of their ability to deliver things digitally, ultimately, they would be able to close that gap. We had a really tough time competing with their cost of capital even if we had great technology because it would be hard for us to compete with them around rates on credit products so, hence, our focus on the near-prime category. We also ….a little bit different from some others, we’re focused on building our own balance sheet because we thought that would provide a lot of stability and consistency in times of either capital market disruption or broader economic disruption.

Well, certainly, we’ve seen quite a bit of….you know, in 2020, with COVID and, again, that’s the strategy that we thought the near-prime space supported well because there’s a bit more yield in that category with extra spread to fund yourself in the whole sub-capital markets. Along the way, as we were thinking about how to best serve customers in that category, we started to work and approach banks with the idea of partnering in different ways so that we could serve their near-prime customers because, of course, banks, you know, may have deposit customers ranging sort of the full gamut of the credit spectrum as opposed to just the prime and super prime that they wanted to lend to. So, when we were kind of engaged in a lot of those discussions, what we discovered was really the banks did want to be able to deliver that experience and those options to customers, but they wanted to be able to do it themselves.

That was really where the idea behind the Amount business started to take form which was the technology that we had developed within Avant which was really leading in terms of a number of things, not just underwriting but also around fraud prevention, account verification, all of the things that are required to be done from a legal and regulatory standpoint. We had, effectively, automated with proprietary technology that you could use across different categories of both products and for different categories of consumers. There was nothing that was sort of, you know, required the technology be applied in this near-prime category, it would effectively work across the board. And so, we started to build partnerships where we were putting together digital lending credit platforms on a customized basis for banks, a number of which can be publicly announced when Amount was still within the company, within Avant.

And then at the beginning of 2020, on January 1st, we spun Amount out as a separate business so Amount is a supplier to Avant of some of our back end core technology, the same way that they are for a number of banks like TD, PNC, Banco Popular, Regions Bank and a handful of others that have not been publicly announced yet. And so, you know, Avant today, back to the original question, so Amount is…..you know, we thought that in pursuing that strategy we’d give both businesses the opportunity to sort of achieve their potential because there’s different considerations for both of the businesses so split them apart.

Today, Avant is really the consumer-facing credit business where we have a unsecure personal loan product which was sort of the original flagship product. We now have a second flagship product which looks like it’s trending to be actually even quite a bit bigger than the loan product, which is our credit card product, where we’ve been in the market for nearly three years now and have over 300,000 active credit card customers on the platform.

Recently, we launched an auto product where we’re offering loans secured by consumers’ automobiles and we have a longer term strategy there of building that into kind of a multi-pronged auto product platform. In addition to that, we’re making big investments in Point of Sale technology and product as well in partnership with Amount who’s doing that with a number of other institutions as well.

So, a lot going on, but, effectively, we’re the consumer-facing digital bank although we don’t have deposits yet, that’s another thing we’re thinking hard about really for that near prime category. Just to kind of round out the summary, you know, we’ve done I think $7 or 8 Billion of unsecured personal loans. As I said, we have over 300,000 credit card customers, I think we’ll originate about 240,000/250,000 in 2020 and aiming toward an increment of 400,000 for next year in 2021 and we’ve very excited about that growth, still very excited about our lending business as well. It is also growing, but not at the rate that the car business is.

Peter: Sure, sure. So, is the customer profile pretty similar for the cards and the loans?

James: Well, it’s a little bit different, that’s intentional. So, for the loan product, the weighted average FICO which is, although we don’t use it in underwriting, is a good reference point that everybody’s familiar with is about 650 and the weighted average for the card product is about 625. So, it’s a slightly down market from the loan product and that was intentional because we saw an opportunity in the market where between kind of existing providers that sort of dabble in the near space as well as prime kind of pulling back. And then another group that’s quite a bit further down the spectrum into the sub-prime category, we saw a lot of white space between those two products and so have positioned our product in that white space seeing a lot of growth and adaption and really excited about the direction where that’s going.

In fact, this spring, kind of late Q1 early Q2, we feel like we got enough data and information that we’ll be able to start cross selling the products effectively in both directions where a credit card customer that’s, you know, maybe more than an emerging upwardly trending credit profile where we’ve got great data and their history with us with the credit card would be eligible for the loan products and vice versa. So, we’re quite excited about the opportunity for cross selling the products and give our customers more of what they need.

Peter: Right, right, okay. Maybe we can just talk about 2020 for a while and just give us some perspective about how….what the arc of your experience has been, obviously, from pre-COVID, through COVID to today, just give us a bit of a rundown, both on the cards and the loan product, how has demand been, how has performance been, that sort of thing.

James: Yeah, sure. I’ll just take them… start with loan and then talk about credit cards and then maybe a little bit on the overall business as well because, I think, like so many others we’ve been affected in a lot of ways beyond just sort of products and performance. But, on the loan side, demand was hit really hard out of the gates when COVID sort of first started to, you know, reveal how significant it was going to be back in early to mid-March where, you know, effectively as everyone knows, the country pretty rapidly started shutting down and, you know, people, consumers were really hunkered down. So, you know, for several months we saw savings rates much higher than what we would typically see and spending way, way down and that also translated because I think, in effect, if the consumer level….people’s individual balance sheets, if you will, kind of got stronger because of that savings and spending dynamic.

The demand for loans fell pretty significantly, you know, our use case for why consumers borrow from us tends to range into a lot of different categories. It’s not necessarily as simple as straight consolidation for customers in the near-prime category so some of its access to credit, some of its unexpected expenses that might be material, some of it, you know, may be more discretionary in nature so certainly we saw demand fall significantly for our near-prime category. It probably fell 70-ish% kind of out of the gates and we’ve seen that recover over the course of the summer and into the fall, but it’s still, at least for us, remains fairly subdued. I’d say it’s down at least 30/40% for our category of borrowers. So, we did a number of things along the way, both as it relates to tightening standards in the early days from an underwriting standpoint, all of which we’ve since effectively unwound and that’s really due to performance which I’ll touch on in a minute.

The other thing that we did very aggressively, very quickly was around making a variety of effectively treatments available to borrowers who were dealing with the hardships, including a newer option which became a primary option where we were able to customize a plan for a borrower based on sort of a specific hit to income level that they saw themselves affected with. And so, a number of things on the operational front that we did in order to sort of make borrowers very aware that they had options out there if they were dealing with any issues. And I think similar to many others in the lending space, you know, what we’ve seen since then has been extremely good delinquency performance and extremely good performance of borrowers that did take some form of treatment or plan, whether that was a forbearance plan or whether that ultimately was a more significant payment plan that resulted in the reduction of payments for them as a result of their hardship. So, we’ve seen this really, really strong adherence to these plans as well as very strong underlying delinquency performance for really the entire loan book.

So, as a result of that, the delinquency levels are really as low as they’ve been in years although, I think, we’re starting to see with some of the broader economic data that I think the whole market’s focused on that, you know, perhaps that will change as we get into 2021. I think a lot of that is going to depend on stimulus programs as well as the pace at which the various states and local areas open up and, you know, sort of ….I think, right now, with last week’s job report, we were at something like 6.7% unemployment, still somewhere in the neighborhood of 10 million or so jobs lower than where we were in February before the pandemic hit. So, I think there some big questions about how that last, you know, few hundred basis points of full employment, you know, how long it takes to get there and how that plays out, but we saw really strong performance on the loan front.

On the credit card front, it’s a little bit of different story from the standpoint that while we did see a little bit of a dip in demand for the first few weeks after COVID hit, it resumed pretty quickly. And so, we did see our level of issuance drop for a couple of months, but based on what we were seeing in terms of performance and all the indicators that we look at, we felt pretty good about the credit profiles and so we leaned in a little bit more on the credit cards side and had several months of record issuance and we were able to nearly make up what our original goal for the year had been which was 250,000 cards. I think we’ll wind up being just a little bit short of that, but a lot of that sort of backend waited after we sort of stepped on the gas on the credit card side.

So, similarly, performance has really, really been strong, delinquencies are very, very low, I’d say card utilization is also a little bit lower which means that average balances, relative to size of lines, has come down from what we would typically see. But, that’s also just very consistent with kind of a healthy individual balance sheet at the consumer level, meaning that they pay down debt levels of their own, including with the card product. So, we see a really, really healthy consumer, in general, and hope that that can continue, but, again, a lot of the broader national policies and state level policies are going to have a huge impact on how things play out in the broader economy and that’ll affect our business, you know, as well, obviously.

Peter: Yeah, yeah, understood, understood. So, maybe we can talk about the capital markets side of business which I know you’re very familiar with having that role previously. Who are you mainly using to fund the loans and the credit lines? I saw recently you extended your warehouse lines with JP Morgan and Waterfall, tell us a little bit about how that side of the business is going right now.

James: Yeah, sure. We have a few different credit facilities with different providers without necessarily naming them. I would say, we’ve got, you know, a mix of big banks and bankruptcy remote facilities, we’ve also got one with a large insurance company. All of our primary facilities we extended, effectively, during the pandemic, extended out the maturities and one of the cases we significantly increased the size and the facility because it’s primarily financing the credit card business which, as I’ve mentioned, has been expanding very rapidly. So, we’ve been very pleased with our lenders and with the processes around extension and expansion there and we’ve been watching the capital markets very closely.

I think, clearly, there was a lot of disruption back in the spring and then, you know, as additional data became available across I think many, many lenders in different categories and, you know, the data sort of spoke for itself. I think the strength that we’re seeing in the consumer is something that’s been broadly seen. We’ve seen a pretty significant recovery in the capital markets so, you know, deals are getting done in our space, we have not done one recently in terms of the capital markets.

We did one back in late February/early March, sort of right as things were getting pretty wacky and because of our substantial balance sheet capital ourselves, cash and the facilities we have, we’ve got quite a bit of flexibility about when we come to market so we’re sort of evaluating timing. I doubt we’ll do something before the end of the year, but look to do something early in 2021, but the markets feel fine if we wanted to do something. We feel like the terms will be fine right now, it’s just not the right time for us.

Peter: Right. What about the credit card side, are you going to go out and do a securitization there?

James: Yeah, I think we will. We haven’t exactly nailed down the timing of one that will take place, but we’ve been contemplating that for many years. So, the financing structure that we have in place essentially contemplates that a typical kind of master trust structure that you often see in credit cards securitization in terms of being, you know, set up in a way to facilitate moving in that direction so that’s something that I think we want to get a little bit more scale in the business, but It’s something that I would expect . We’ll probably do our maiden offering in 2021.

Peter: Right, right, okay. I want to switch gears a little bit and talk about the decision that happened in Colorado earlier this year that was…..you guys were part of that. Basically, the state of Colorado affirmed the banking partnership model. The OCC has since issued a final rule on True Lender so, maybe we can just start off with asking how has this impacted business since then?

James: Sure. I think it’s a pretty big decision and fairly far reaching from the standpoint that the Colorado case or cases which involved both ourselves and Marlette in sort of independent cases, but effectively we were being worked through the system jointly which meant that we were coordinating to the extent that we could on some of the defense issues because it was the first time that a state had really alleged this True Lender issue in any cases that involved lenders that exclusively lent below 36%.

You know, historically, there had been a handful of these cases which all sort of revolved around deep, deep sub-prime lenders and I think largely players that were perceived to be weak on regulatory considerations or maybe not great actors, that kind of thing. You know, the doctrine around True Lender was probably extended a little bit because of some of those considerations, but it had never really been applied in a case like ours where we worked incredibly closely with our issuing bank partner around the bank’s policies and the practices and services that we perform and it’s highly structured and monitored which I think is fundamentally different than some of these other cases.

So, in any event, what happened was that the state of Colorado ultimately agreed with us as after I think about three and a half years proceeding with the litigation, we finally got into you know, very, I guess, deep aspects of the discovery there, including depositions and I think as Colorado better understood our business, I think they were in a position to support it from the standpoint of help to craft a safe harbor that they thought would protect consumers even in cases where it’s above the state of Colorado’s usury limits because they saw real benefits and they saw appropriate governance and controls on institutions involved, both the bank and a fintech like ourselves.

So, in fact, we actually had a study that demonstrated that consumers in New York, for example, where the Madden case had been decided and where a lot of fintech lenders pulled out after that decision that consumers in the state of New York were, essentially, forced to adapt or accept inferior credit products that were higher rate relative than what they were able to get when that market was available to them. I think Colorado found that to be pretty persuasive as well.

So, ultimately, really what they saw was that I think what we’re doing, if done properly, is good for consumers because it’s creating liquidity in these credit markets for middle class consumers that might have a harder time accessing it otherwise. So, that’s, I think, why they were focused on it and why it’s important is that it could be a roadmap that potentially other states could look to as well. It’s much more detailed than the OCC’s version of the final rule on True Lender, not to say that one’s better or worse. I think the OCC’s is far more simpler, but the standard that we agreed to with Colorado is one that we feel very comfortable about working within and one that we would happy to adopt more broadly as well.

It’s, frankly, very close to what we had been doing historically. So, there’s been a lot of uncertainty over the industry around these issues, both Madden and True Lender, and different times affecting sort of the liquidity within the industry from the standpoint of capital markets and lending. So, bringing clarity on that issue would be really helpful and important, we’ll see if other states adopt it over time, but it’s a good step in that direction for sure.

Peter: Yeah, yeah. We should point out too that the state of Colorado….I live in Colorado so I know it pretty well. You know, the Attorney General and the Governor of Colorado are both Democrats and, obviously, we’ve got a new Democrat administration in Washington ….sometimes I feel like this is a great case because…. there is a criticism of the bank partnership model because it’s a way to circumvent, it’s a way to kind of charge high interest. I guess, I’m curious about how you think about it playing out on the national states given that….there is, definitely, a small position to it and not everyone agreed with what Colorado decided.

James: Yeah, that’s true. I think that there’s a lot more to come on these issues, I think it will be very interesting to see how the new administration chooses to handle it and sort of what happens from the standpoint of who’s put in-charge of some of regulators like the OCC where I think we’ve probably seen the most innovation coming most recently. I think it’s possible even that some of the rule making that’s been done more recently could come back under review potentially which is another reason why I think the state decision to the extent….the OCC, you know, effectively pulls back on any of the guidance they’ve done within this area.

The state case in Colorado could be very helpful as something to point to and you’re right about Colorado having a Democratic administration of it’s own and I think it goes to the point that I was trying to make earlier that these products can be very helpful for the consumers and that there’s really good data and information that demonstrates that. So, I think when you see the overall effect and the intention of the parties around this, you just got to make sure that there is appropriate governance and controls and that it’s been done in an appropriate way from a regulatory standpoint that there is a way to have everybody win here is a good thing. And, I think that’s what got recognized in Colorado. So, we’re hopeful that that could be a roadmap.

Peter: Right, right, okay. I just want to pick up on one thing you said there. There’s a lot of a knock on this whole model, the consumers are harmed and that this is not good for the consumer. You just said that you’ve got data that demonstrates that that’s not the case, what kind of data do you have and are you sort of benchmarking the typical consumer as far as credit score or credit health, what do you have?

James: Well, specifically, what I was referring to is a study that was conducted by an economist named Michael Turner who’s based in Columbia University. What he studied was this impact from Madden that happened in New York state versus what was happening in Colorado during the same timeframe and just a relative differences in access to credit sort of in those different states based on the prevailing sort of legal regime at that time where in New York these types of fintech partnerships were no longer occurring, but they had before. So, you have a pretty distinct data set where you could look at what was happening when that product was available, what was happening after it have been taken away.

What was very clear was, essentially, people within narrow credit score bands, you would see the cost of credit increase pretty materially for that credit band after that service with fintech being partnerships went away. And so, I think, that study is publicly available, was filed as part of the court case and it’s pretty powerful in terms of what it shows, it’s very clear and Dr. Turner is a very well-regarded independent economist, so I think that was pretty persuasive for Colorado.

In terms of what we do specifically, it’s been a little while since I’ve looked at the data closely myself, but I know, historically, we have seen peoples’ credit scores increasing over time as they’re consistently making payments on our products. Certainly, part of what we try to do as a business is to continue to provide better products, lower cost products to customers when they’ve demonstrated the wherewithal that they should be eligible for that.

So, what that translates to in practice is that we’re actually expending our credit card offering in terms of a range of card products, including one we have not launched yet, but which will have things like promotional periods with no interest, with rewards and cash back. They are more consistent with the higher credit spectrum than where we’re at today with our card product, it’s kind of around 625 FICO.

Similarly, on the loan side, you know, we have an active refinancing program where we…for customers that have demonstrated strong payment history, we’re refinancing customers into lower rate loans on a proactive offering basis. So, things like that which….you know, small steps along the way, but make a big difference in people’s lives. So, I think we’ll continue to do those things and we’re excited about the opportunities we think we have in the auto space to do some more things.

Peter: Okay. So, last question just on that. I mean, as we turn the page to 2021, what are the main opportunities you ate looking for? You mentioned auto, where do you see Avant moving in 2021.

James: Sure. There’s a few things that we’re most focused on. I’ve mentioned a couple of these, but….number one is continue to grow the credit card business. As I said, we’re looking to do about 400,000 cards next year, a big part of that is going to be expanding into some new spaces from a customer standpoint. So, I mentioned moving up market with rewards and promotional offers. I think we’ll also experiment a little bit further down the credit spectrum as well and we’re looking at doing more underwriting in both loan and credit card for thin file customers.

So, I’d say number one is continue to push and grow the credit card business. Number two, I mentioned, we’re going to be launching cross sell capability between those two products to where we’re able to offer, you know, the other product, a loan to a card customer, a card to a loan customer. That’s coming early in 2021 and then really making significant progress both on our auto product suite where ultimately we think it is a big opportunity in refinancing auto loans direct to consumer.

Also, Point of Sale is a big push for next year. So, we have a lot on our plates, there’s a lot that we want to get done, but we’re very excited about how the company is positioned. I think just on that point, Avant has been profitable now for a few years, kind of hovering right around break even and a lot of that being a function of growth because we do have our own balance sheet and some of the accounting around that. So, the company is in a good position from a capital and liquidity standpoint. We’re still very cautious on the broader economy in what’s happening at the consumer level. So, we’re carefully watching that, but assuming things continue to play out pretty well, we’re excited to see some pretty meaningful growth in both our card and loan business next year based on all these investments.

Peter: Okay, James, it’s really fascinating chatting with you. Best of luck for next year and thanks for coming on the show.

James: Peter, it was my pleasure, thanks for having me.

Peter: Okay, see you.

James: Alright, take care.

Peter: Avant is, I think, a great example of a company that started in unsecured consumer loans and has expanded out into other areas. We talked about credit cards, they’re becoming a decent-sized credit card provider, auto loans, obviously, James has talked about. What they’re doing is they’ve got a certain customer they’re trying to serve them in multiple ways and serving them with multiple financial products like traditional financial institutions.

I wrote about this a few weeks back where I really see a blurring of the lines between traditional financial institutions and fintechs that really…..it already started to happen, obviously, but fintechs are becoming diversified financial institutions and banks are becoming far more tech-enabled. James even teased that there might be bank offerings down the road, we didn’t get a chance to chat about that, but that makes my point, they have their market, they’ve got multiple products and they really want to be able to serve this customer really well. I think that’s what’s successful fintechs will be doing this decade.

Anyway, before I sign off, I just want to wish everybody a Merry Christmas, Happy Hanukkah, however you celebrate the holidays. This is our last one before Christmas, thank you all so much, wishing you a safe and happy holiday season,

On that note, I will sign off. I very much appreciate you listening and I’ll catch you next time. Bye.

Today’s episode was sponsored by LendIt Fintech Digital, the new online community for financial services innovators. Today’s challenges are extraordinary with the upheaval affecting all areas of finance. More than ever before, we need to come together as an industry to learn from each other and make sense of this new world. Join LendIt Fintech Digital to connect and learn all year long from your peers and from the fintech experts.

Sign up today at digital.lendit.com.

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Filed Under: Fintech One-on-One Podcast Tagged With: Amount, Avant, Colorado, credit cards, Personal Loans

Views: 340

The Bank Partnership Model Affirmed in Settlement With Colorado

This groundbreaking settlement resolves the "true lender" issue in Colorado and could be used as a regulatory framework across the country

August 18, 2020 By Peter Renton Leave a Comment

Views: 1,416

The issue of “true lender” has been one that has dogged the marketplace lending industry virtually since its inception. When a borrower takes out a loan from most marketplace lenders the loan is often originated by a partner bank then held on their balance sheet for a short time before being sold to the lending platform. There has been debate about who is the true lender in these circumstances.

In 2017, the Colorado Attorney General filed two separate lawsuits against Marlette Funding and Avant alleging violations of the state’s Uniform Consumer Credit Code by charging interest rates in excess of those allowed under Colorado law. These loans were originated by out of state banks, Cross River Bank and WebBank, who were also party to these lawsuits. These banks are allowed to export higher interest rate caps across state lines but Colorado was saying that this was all a scheme to lend above Colorado’s usury rate limited.

The upshot of these lawsuits was that Colorado consumers had less choice as both Avant and Marlette, along with WebBank, started excluding Colorado consumers from their loan offerings. And it even called into question the business models of Cross River Bank and WebBank as both banks have established long running partnerships with many marketplace lenders.

After years of back and forth, and much time and expense, today the Colorado Attorney General announced a settlement with all parties. It is hard to overstate how important this is for the industry. These lawsuits have been hanging over the industry for years and even though the OCC recently proposed a new true lender rule there was still a great deal of uncertainty.

With this settlement, which amounts to $1.55 million in total, the companies have “committed that they will not lend to Colorado consumers at rates above 36% and will provide consumers with other protections required by Colorado law. In addition, non-bank partners will maintain a Colorado lending license.” There are also certain oversight requirements and they laid out a model for successful bank-fintech partnerships in Colorado. It is this model that could be adopted by other states and become a de facto national standard. Which is why this is big news today.

The industry was clearly pleased with this settlement. I reached out to several parties to get their commentary on what this means. First, Nat Hoopes from the Marketplace Lending Association: [Read more…]

Filed Under: Fintech Tagged With: Avant, bank partnerships, Colorado, Cross River Bank, Madden v Midland, Marlette Funding, true lender, WebBank

Views: 1,416

New Action Plans from the Leading Consumer Lenders

We reached out to several leading online consumer lenders to see what actions they are taking to deal with the fallout from COVID-19

March 25, 2020 By Peter Renton 2 Comments

Views: 2,945

There is likely no one alive who has witnessed this level of economic disruption in this country in such a short time span. With potentially millions of people losing their jobs in the past two weeks this could have a dramatic impact on the consumer lenders.

We reached out on Monday of this week to several leading online consumer lenders, across a range of the credit spectrum, to get a sense as to how they were responding to the rapidly changing economic conditions. We asked four questions:

  1. What are you doing to help your existing borrowers?
  2. How are you changing their underwriting?
  3. How are you responding to increased loan demand?
  4. What is your message to investors?

We heard back from several of the leading companies although some wanted to talk on background only, preferring not to go on the record at this time. Suffice it to say that every single lender has reacted quickly to this looming crisis.

Below are their responses.

LendingClub 

LendingClub released this 8-K earlier this week that has a detailed explanation as to how they are responding. Here is a short summary: [Read more…]

Filed Under: Peer to Peer Lending Tagged With: Aura, Avant, consumer lending, coronavirus, lendingclub, Marcus, Marlette Funding, Opploans, Prosper

Views: 2,945

Avant’s Amount Aims to Answer How Banks Can Stay Competitive

Al Goldstein has ambitious plans for the service previously known as "Powered by Avant"

September 26, 2018 By Ryan Lichtenwald 1 Comment

Views: 2,531

Many people don’t realize that Avant actually operates two lines of business. One, the online lending platform which offers loans to near prime borrowers and the other, a SaaS business previously branded as “Powered by Avant”. This week Avant rebranded their Powered by Avant service to Amount. We spoke to Al Goldstein, Founder and CEO of Avant to learn more about what the SaaS business has been up to and the reasoning for the rebranding.

Avant has been operating these two separate business lines for quite some time so it made sense to distinguish between the two. From a bank customer standpoint, the new Amount branding is much cleaner and more transparent. Avant also wanted to reduce any confusion from potential borrowers who may be aware of Avant’s platform and then also see the Avant name next to their bank’s offering. With the new name, they have also secured the domain www.amount.com which provides an overview of the offering.

Amount’s most well known relationship is with Regions Bank which was first announced in April, 2016. Regions Bank is a top 50 bank with about $123 billion in assets and has leveraged Avant’s technology for their personal loans business.  Another partnership that has been made public is with Eloan, a division of Banco Popular. Goldstein noted that there are other banks already leveraging Amount and other deals in the works which have not yet been made public. We should hear their next big bank partnership announcement later this fall.

Where it gets really interesting is when you understand both the full suite of Amount’s offerings and Al Goldstein’s long term vision for the company. Amount is a full service platform offering loan origination, verification and fraud services, decision hosting, analytics, marketing, servicing and of course what powers the front-end customer experience as well as all of the infrastructure on the back-end.

The product will evolve over time with Amount first offering customized solutions for large banks which tend to be more full service, but Amount also plans to break out the services. For instance, you can already purchase as a separate product “Amount Verify”, their fraud and verification software which can not only be used for personal loans but across all banking products, credit cards, deposit accounts, etc. Another benefit of using Amount’s platform is the data they have gathered on over $6 billion, smaller dollar loans which can be leveraged to better underwrite borrowers.

The next phase will service the sub $10 or $20 billion asset banks which will be an off the shelf type product, which is not customizable, but configurable. This aims to strike a balance between offering a compelling, technology driven product suite while still keeping costs down for banks that lack deep pockets. Looking out to the future, these solutions may be the only way smaller banks will be able to compete as this type of technology becomes prevalent across financial services.

The final phase of Goldstein’s vision is the full stack, core banking systems offering. He noted that this is probably 10 years out, but they plan to go head to head with the incumbents such as Jack Henry and FIS. Core banking technology currently relies on decades old infrastructure. While there has been progress in updating these legacy core banking systems, it is most often a new skin on the same infrastructure or components being built on top of the existing infrastructure. Goldstein wants to change this.

Amount’s long term plans are certainly ambitious and they rely heavily on courting some of the biggest banks. We’ve often talked about the build, buy or partner decision that all banks have to make and Amount is making a bet that most banks, even big banks will see the benefits of the buy or partnership model.

Goldman Sachs has taken the opposite approach with Marcus, so we wanted to get Al Goldstein’s perspective on them. He noted that for big banks such as Goldman Sachs, it isn’t really necessary to build this technology from scratch. In the case of Marcus, they spent hundreds of millions and years of time developing their products from the ground up. Marcus has been a huge success, but it comes at a cost and it will take a long time to recoup that investment. Goldstein’s message to big banks is that you can spend a fraction of that, a lot less time and have certainty that you’re going to have a functional product. Goldstein believes that some financial institutions such as Capital One, Discover and others will always build due to the resources they have, but for most banks outside of the very largest it isn’t realistic.

Conclusion

Almost every large bank has a digital strategy, but many of their plans, particularly as it relates to lending are not yet known. It’s going to be interesting to see what route they ultimately take to upgrade their technology and whether they leverage a SaaS solution such as the one offered by this newly branded division of Avant called Amount.

 

Filed Under: Peer to Peer Lending Tagged With: Amount, Avant, online lending, SaaS

Views: 2,531

Global Debt Registry Launches Loan Ledger with Help of IBM Blockchain

The new platform will allow for greater transparency into the online lending ABS market and already includes lending platforms such as Avant

June 27, 2018 By Ryan Lichtenwald Leave a Comment

Views: 333

We often hear about all of the applications of blockchain technology in financial services, but there are very few solutions which have reached a point where they are ready for prime time. Today we learned that Global Debt Registry was leveraging IBM Blockchain for their new decentralized ledger. Loan data serving the ABS market will now be available on the cloud-based IBM Blockchain Platform.

The ABS market relies on a variety of service providers throughout the supply chain which leads to inefficiencies in the process. Putting this information on the blockchain also allows for greater transparency for issuers, auditors and of course, investors.

What’s interesting about this announcement is the new GDR decentralized registry has already registered over 700,000 loans across multiple credit facilities. It’s no surprise that the focus has been on the digital or online lending market. Specifically, the press release noted that investment banks are currently leveraging the platform to manage their positions in Avant among others.

Kevin Friedrich, VP Finance & Treasury from Avant provided the below statement in the press release:

Avant is committed to serving its capital partners with innovative technical solutions to maximize transparency and ease of collateral management, as further demonstrated through our use of GDR’s blockchain based registry.

Conclusion

If we look back at the early days of p2p lending, access to loan level data was one of the aspects that made the next generation of lenders revolutionary. Leveraging blockchain technology is the next iteration of this, offering transparency to investors in a more seamless way. Given the benefits to numerous stakeholders and efficiency gains it is also one that could scale quickly.

Filed Under: Peer to Peer Lending Tagged With: ABS, Avant, Blockchain, Global Debt Registry, IBM

Views: 333

The Fastest Consumer Lenders to $1 Billion in Originations

We look at the six major online consumer lenders and share how quickly they reached their first billion dollars in originations.

June 26, 2017 By Peter Renton 12 Comments

Views: 1,580

In an interview on CNBC last week Goldman Sachs CEO Lloyd Blankfein shared some news about their consumer lending platform. He said that Marcus had already crossed $1 billion in total loans issued and was on track to cross $2 billion by the end of the year.

Having launched in October 2016 Marcus crossed $1 billion in just eight months. For the online lending industry that is truly breathtaking speed. And it got me wondering. How does that speed compare to many of the industry leaders we know today?

Now, before I present this research let me say one thing. While it is an interesting data point, the speed at which a platform reaches $1 billion in total loans issued it is not an indicator of how successful a platform will become. Clearly, there are many other factors that are more important than speed of growth.

Anyway, I did a little digging and through publicly available information I was mostly able to figure out how quickly many of the major platforms reached their first billion in total loans issued. While the data here may not be exact I am confident it is close and the order is correct.

1. Marcus – 8 months

Marcus has something of an unfair advantage given that it has access to the many billions of dollars sitting on the balance sheet of its parent company, Goldman Sachs Bank. It did not need to secure outside capital to fund its loans and is able to grow as fast as the company wants.

2. SoFi – 14 months

SoFi made its start with its student loan refinance product, a category it invented but in this article we are looking only at personal loans. SoFi launched a personal loan product in February, 2015 and while they never publicly disclose the breakdown of their business lines we can glean enough information from its securitizations to make an educated guess as to when they reached $1 billion in total loans funded. Based on data from Kroll Bond Rating Agency, we know that by August 1, 2016 (when the SCLP 2016-2 securitization closed) SoFi had issued at least $1.3 billion in loans based on the loan pool balance of their first three personal loan securitizations. Based on that data I estimate they crossed the $1 billion mark around April of 2016, 14 months after they launched the product.

3. Marlette – 17 months

We first wrote about Marlette back in June of 2015. Back then they had been in business just 15 months with the Best Egg brand having made their first loan in March 2014. In those 15 months they had reached $800 million, taking just five months to go from $400 million to $800 million. So, most likely by August they had crossed the billion dollar mark. [Read more…]

Filed Under: Peer to Peer Lending Tagged With: Avant, Lending Club, Marcus, marlette, Originations, Prosper, SoFi

Views: 1,580

The Top 10 Most Important Marketplace Lending Stories of 2016

In our annual retrospective we break down some of the biggest news stories that we covered on Lend Academy this year.

December 28, 2016 By Peter Renton 2 Comments

Views: 1,021

Sunset-2016

Many of us in this industry will be glad to see the last of 2016. It has been a difficult year on many fronts, certainly the most challenging in the industry’s short history. This was the year of the pullback as the rapid growth of the last decade dissipated amid a downturn in investor interest due to missteps at some of the major players. But there was also some good progress made this year as you can see in many of the stories below.

Here are my top 10 most important news stories that we published on Lend Academy in 2016.

1. Lending Club Founder Renaud Laplanche has Resigned as CEO

It was a very easy choice for the biggest news story of this year. The departure of Lending Club founder and CEO Renaud Laplanche was the most important news story of this past decade. He was the leading figure in the industry. His drive and vision was one of the main reasons not just Lending Club but the entire industry had seen such growth over the previous few years. The news of his departure rocked the industry globally and led to a dismal 2016 for many lending platforms.

2. New Fintech Charter Proposed by the OCC

There has been talk about a new regulatory structure for marketplace lending since the GAO report way back in 2011. By September it was clear that the Office of the Comptroller of the Currency (OCC) was going to take the lead here. In early December the head of the OCC, Thomas Curry, announced the plans for a new fintech charter that will launch in 2017. They are currently seeking public comment on this idea until January 15, 2017. This will be a big story to watch in 2017.

3. The Goldman Sachs Consumer Lending Platform Called Marcus Has Launched

[Read more…]

Filed Under: Peer to Peer Lending Tagged With: Avant, China, Goldman Sachs, Lending Club, OCC, Prosper, Renaud Laplanche, SoFi, Supreme Court, U.S. Treasury

Views: 1,021

A Bad Quarter for Prosper and Avant Parts Ways With 30% of its Workforce

Two of the leading online consumer lending platforms are still struggling to regain their footing in this difficult environment

August 18, 2016 By Peter Renton 2 Comments

Views: 181

Bad_Quarter_Prosper_Avant

Two of the leading marketplace lending platforms reported some more bad news this week as the industry continues to struggle to gain any positive momentum.

First, we had Prosper. Late Monday Prosper released their results for the second quarter. As expected it was not pretty. Originations were down more than 50% from Q1 as they were hit hard by the general pullback from investors. Total originations in Q2 were $445 million down from $973 million in Q1 and also down from $912 million in Q2 2015. Prosper laid off 28% of its workforce in May and at that time management said that Q2 would be a significantly down quarter. But to be down more than 50% was more than most people expected. Below is a chart showing the quarterly originations back to the beginning of 2013 when the current executive team took over.Prosper_Originations_2013-2016

[Read more…]

Filed Under: Peer to Peer Lending Tagged With: Avant, layoffs, Originations, Prosper

Views: 181

Leading Chinese Platform CreditEase Makes First Investment on Avant and Prosper

The P2P lending platform turned wealth management firm creates the first Chinese offshore fund to invest in loans issued by western platforms.

May 31, 2016 By Peter Renton 2 Comments

Views: 1,036

CreditEase invests in Avant and Prosper

I first became aware of CreditEase back in June 2013 at the inaugural LendIt conference in New York. We met with some of their management team back then and when they told me their loan origination volume I couldn’t believe it. I really thought they must have got something wrong in the currency conversion. Even back then they were much larger than Lending Club or any other platform I knew.

Today, they are one of the leading lending platforms in China having issued over US$15 billion in loans last year. But they are far more than a lending platform. Wealth management is now a major focus as their clients have sought out their expertise in making investments beyond their P2P lending platform in China – in 2015, approximately 50% of all CreditEase revenue came from non-P2P products.

Which brings us to the focus of today’s article. CreditEase has raised $80 million from their wealth management clients to invest on international marketplace lending platforms. Over the last several months they have conducted a thorough due diligence process where they looked at around 60 different lending platforms from all over the world.

I chatted with Richard Williamson, an Australian who is running corporate strategy for CreditEase, and has been leading this effort. Given the background of their investors in P2P lending the goal was to deploy this capital on similar consumer or small business lending platforms.

[Read more…]

Filed Under: Peer to Peer Lending Tagged With: Avant, China, CreditEase, institutional investing, LendIt China, Prosper, wealth management

Views: 1,036

Avant Launches Institutional Marketplace with Some Big Name Investors

April 13, 2015 By Peter Renton Leave a Comment

Views: 65

avant

Avant has been somewhat of a quiet achiever in the online lending space. In just over two years CEO Al Goldstein and his team have built a successful business that is set to become a dominant player.

Strictly a balance sheet lender until now, Avant is launching their institutional marketplace today. And they have signed on three very big names for their launch. KKR, the legendary private equity firm, is the lead investor and they are joined by Victory Park Capital, who seem to be in every major deal these days, along with Jefferies, the leading investment bank, who have also invested in CircleBack Lending.

An Introduction to Avant

So who is Avant? They recently rebranded from AvantCredit to just Avant and they are probably the leading near-prime online consumer lender in the US today. They focus on the 600-720 FICO segment and they have an average FICO score of 640.

When I spoke with CEO Al Goldstein a while back he told me that he thinks the mid-prime segment is a huge opportunity but that it is difficult to execute on. At Avant they are very much focused on big data and machine learning algorithms. Goldstein said that all loans are approved within 24 hours and for half the customer base underwriting is completely automated. Their goal is to increase that to 100% of their customers in the near future.

While there is some overlap with Lending Club and Prosper in the 600-720 FICO segment Goldstein said that he didn’t really view them as direct competitors. He views some of the brick and mortar mid-prime lenders as Avant’s competitors.

[Read more…]

Filed Under: Peer to Peer Lending Tagged With: Avant, institutional investing, marketplace lending

Views: 65

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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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