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P2Binvestor Creates a New Kind of Bank Partnership

P2Binvestor and New Resource Bank partner on a new kind of asset backed lending deal

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P2Binvestor (or P2Bi for short) is an asset-based small business lender that has been around for a few years. I am an investor and they have been included in my quarterly returns roundup for some time now. Also, I interviewed CEO and Co-Founder, Krista Morgan on the Lend Academy Podcast a couple of years ago. Full disclosure: I am also on their advisory board.

Today, they announced an innovative new bank partnership product that is truly noteworthy. I chatted with Krista earlier today to get the scoop and some background about this new product. It all started at a hockey game about a year ago when she was chatting with a commercial banker. The banker lamented the fact that so many of their customers wanted more money than they were willing to provide. While discussions with that banker did not go anywhere the idea was germinated in Krista’s mind. What if there was a way to partner with a bank on a loan where P2Bi contributed to the deal along with the bank?

When Krista started discussions with San Francisco-based New Resource Bank earlier this year they were immediately receptive to the idea. After several months of back and forth and a couple of initial deals to test out the platform they are ready to announce their new partnership and this new structure to the world.

How These Deals Work

There is a detailed explanation of how this all works in Krista’s LinkedIn post she published today but here is a quick excerpt:

Businesses that don’t qualify for traditional bank financing are evaluated by P2Bi for a partnership loan based on joint credit policy criteria. Qualified businesses are extended an asset-backed line of credit with capital provided by the bank in a senior secured position, and the P2Bi marketplace in the second position. 

So, this is one loan, or line of credit to be precise, but with part of the funding being provided by the bank and the other part by the P2Bi investor marketplace. P2Bi will blend the interest rates from the bank and the marketplace for a lower interest rate for the borrower than they would have received if it was just the marketplace funding the loan.

Here is the really cool part: P2Bi remains the senior lien holder so they are in control if there is ever an issue with the loan. Having said that the bank is in a senior secured position so the bank must be paid in full before any of the marketplace investors get any of their money. But given these are asset-backed loans and in this relationship they are only lending up to 80% of the value of the collateral it is not as risky as it first seems.

My Take

I have invested in two such deals on their platform already and I think this could become really popular. It is a win-win-win where the borrower gets a lower rate, the bank gets to participate in deals they would otherwise miss out on and marketplace investors get more deals to invest in.

We have not seen as many new bank partnerships as I expected we would this year. So, it is good to see a platform getting creative and coming up with a new way to partner with banks. Krista said they would welcome other banks who are interested in expanding their loan book in a similar way. It will be interesting to see if this becomes a popular new model for banks to partner with fintech platforms.

The American Bankers Association Endorses Online Lending Software Provider Akouba

The endorsement is a huge boost for Akouba, a small business lending software provider for community and regional banks.

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We have said a number of times that 2017 is going to be the year of the Fintech/Bank partnership. This announcement today from the American Bankers Association (ABA) fits in very well with that premise.

The ABA announced that they have endorsed the digital lending solution provided by Akouba, a software provider that helps banks deliver small business loans in an efficient manner. This is a coup for Akouba, a startup with 11 employees (according to LinkedIn) that was founded in 2014.

Akouba first came on my radar about a year ago when they applied to PitchIt @ LendIt. They were chosen as one of the eight finalists and they presented to the judges and audience at LendIt USA 2016 this past April. They did not win and I have not heard much from them since that time but clearly they have been getting traction.

A More Efficient Way to Underwrite Small Business Loans

Akouba was conceived because most community banks do not have the capability to underwrite small business loans efficiently. They use old, paper-based methods that make it difficult to underwrite small dollar loans profitably, particularly the sub-$250,000 loans. Akouba provides the technology that converts this paper work flow into an online process from application all the way through funding. They are able to work with the banks underwriting model and incorporate it into this online process.

[Read more…]

What the Orchard & Sandler O’Neill Deal Means for Bank Partnerships

We look into one of the latest bank partnerships in online lending, this one with data and analytics provider Orchard.

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Orchard recently inked a partnership deal with investment bank and broker dealer Sandler O’Neill to provide their bank and specialty finance clients access to the Orchard platform. Orchard provides an integrated platform that helps to connect online loan originators and investors with access to a variety of web-enabled tools, including market data, benchmarking, investor reporting, portfolio analytics, and cash flow simulators, as well as capital markets software.

Sandler O’Neill’s network of community banks, thrifts and specialty finance institutions will now be able to access the online lending asset class. Orchards network of originators will give these institutions a diverse group of choices so they can better understand where to allocate their capital.

Online lending has seen a surge in bank partnerships the last two years and it does not look like stopping anytime soon. 2017 looks to be the year of the bank partnership and deals like Orchard/Sandler O’Neill can only help to accelerate this trend. While the initial partnership will help Sandler’s clients allocate capital, the more interactions that traditional institutions have with emerging fintech companies the more possibilities emerge.

“Many banks and specialty finance companies are ramping up their exploration of online lending to start 2017,” said Orchard’s Chief Commercial Officer Bill Ullman. “While some are just beginning to look and to make sense of this emerging space, others are deciding on the best tools to start making an allocation. Working with Sandler O’Neill, Orchard is providing them the expertise and data to begin evaluating and monitoring the wealth of opportunities that exist across the online lending market.”

Big incumbent banks have a lot of resources at their disposal. Being able to evaluate, partner or even build their own solutions is a luxury that small firms just do not have. Using a firm like Orchard to help provide access to this emerging asset class allows for the small institutions to be a lot more efficient when looking to interact and deploy capital.

Lend Academy has been keeping a tally of fintech/bank partnerships that you can view here; as the chart points out the types of bank partnerships can vary in scope and size. Community banks and special finance institutions can benefit greatly from a partnership, though they are unable to spend the necessary time to research all of these emerging companies. This is where the partnership of Orchard and Sandler O’Neill comes in, while it is still early days, the potential for a whole host of partnerships is an exciting piece of news for the market.

The New Intersection of Banks and Marketplace Lending

The lines are blurring between banks and marketplace lending platforms and I argue that is not a bad thing.

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banks_marketplace_lendingSince Lending Club announced the first bank partnership in 2013 banks have been increasing their involvement in the marketplace lending industry. But in recent months it feels like banks have become even more integral to our industry. Platforms are now actively contemplating acquiring a bank or starting their own bank. Many think this marks the end of the disruptive nature of marketplace lending. I couldn’t disagree more.

Zopa is Leading the Way Again

Zopa began the peer to peer lending revolution when it launched in 2005 and they are leading the way again with their announcement last month that they will be launching a digital bank. Their application has to go through a lengthy regulatory approval process that could take as long as two years but once approved they will be able to take deposits and offer a full suite of banking services.

The digital bank will remain separate from their P2P lending platform but clearly there will be some cross selling to Zopa’s clients. Zopa investors may decide to open a savings account or take out a small business loan, services that Zopa could add once they launch their digital bank.

SoFi is the Company to Watch in the USA

SoFi has a very different business model to Zopa. They were never a peer to peer lender but have operated a hybrid marketplace/balance sheet lending model. They are, however, the clear leader in online lending today in the US. They currently offer multiple products: student loans, personal loans, residential mortgages as well as wealth management services and recently began offering insurance. This suite of products looks similar to what many bank holding companies offer. [Read more…]

2017 Will Be A Huge Year For Bank Partnerships

Banks Will Buy, Build and Partner with Fintech Companies

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Dear online lending companies, please go out and hire additional business development people asap. Your teams will be very busy in 2017 as we are about to see a wave of banks seeking partnerships.  We want to make sure that you are ready to close these deals.  Sincerely, your friends at LendIt & Lend Academy.

Last week I traveled to North Carolina to speak at the Carolinas Credit Union League Annual Meeting. This was a gathering of CEOs from about 30 of the largest Credit Unions in the Carolinas. Admittedly, these Credit Unions are small potatoes in the broad landscape of banks, but they represented the largest Credit Unions in the Carolinas and it was refreshing to hear from a room full of CEOs that are hungry to do a deal.  I presented on bank partnerships and why banks should consider buying, building and partnering with fintech companies.

Originally small banks feared possible disruption but that fear has subsided, now the focus has shifted to collaboration

Both banks and fintech companies have come to the realization that they have core competencies that are complimentary.  According to a recent Manatt survey, a whopping 72% of regional and community banks said that they plan to collaborate with a fintech company in the next 12-18 months. In my small sample set, I polled the 30 CEOs in the room and only 3 had already established fintech partnerships (two with NCR for payments and one with a mobile banking developer) and the remainder were eager to find partners.

Partnerships have been most frequent. There are three ways that banks can partner with online lenders.

Banks are naturally conservative so it comes as no surprise that the early adopters have chosen to partner with fintech companies rather than buy or build.  We expect that partnerships are going to rapidly accelerate in 2017.

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Bank partnerships with Online Lenders take three forms as displayed above.

Bank-Fintech-Bank (BFB): In this scenario the bank uses their channel to originate borrowers, the online lender underwrites the loan, and the bank uses its depositor base to fund the loan.  Some well known examples of the BFB structure are JP Morgan & OnDeck, Santander & Kabbage, and Regions Bank & Avant. [Read more…]

US Banks Can Learn from Referral Scheme Enacted in the UK

This week a government initiative in the UK took effect that will provide leads to alternative finance providers.

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This week a new referral scheme, that has been in the works for two years, launched in the UK. It was an initiative started by the UK government and aims to expand access to credit to small businesses. The way it works is pretty simple. If a small business seeking a loan is rejected by any of the nine largest UK banks, they must refer the small business to an aggregator platform, who in turn will provide options to the borrower from various online lenders. The aggregators are currently Funding Xchange, Business Finance Compared and Funding Options.

While this kind of government initiative is unlikely to happen in the US, it’s still relevant when we talk about bank partnerships and referring customers. A bank partnering with an online lender by forwarding leads is a great way for banks to ease into the online lending industry while booking revenue on the leads. For some banks, this could mean forwarding customers where they don’t offer a good product fit or forwarding rejected applicants that don’t fit the bank’s risk band.

A perfect example of a bank looking to better serve all customers, regardless of credit profile is the recent partnership between Regions Bank and Avant. Regions Bank lends to prime borrowers by using Avant’s technology and underwriting and the customers who are denied are directed to Avant’s website which focuses on near-prime borrowers.

A partnership involving referrals is a win-win for the bank and the platform. Most importantly the customer is being better served by their bank. While there have been many bank partnerships announced over the last year we believe that 2017 will be the biggest year yet for bank partnerships with fintech companies.

If you’re interested in learning more about bank partnerships, LendIt, a sister company to Lend Academy is hosting a LendIt Forum titled Taking on Current Challenges to Bank Partnerships and More. It is a free webinar and takes place on Wednesday, November 16 from 2:00 PM – 3:00 PM Eastern. Some topics that will be discussed are:

  • Business structuring and decisions that address “true lender”, Madden v. Midland and other challenges
  • Emerging platform alternatives to direct lender and bank partnership models
  • Different ways fintech companies and banks can partner
  • Impact of recent litigation and enforcement actions

Speakers include Manny Alvarez, General Counsel & CCO of Affirm, Richard Neiman, Head of Regulatory & Government Affairs at Lending Club and Kevin Lewis, Head of Business Development at Avant.

You can view more information and signup on the LendIt website.

About Lend Academy

Lend Academy has been bringing you all the news and information about peer to peer lending since 2010. Founded by Peter Renton, Lend Academy not only has the most active news site, but also the largest online forum and the first and most popular podcast in the industry.

The Lend Academy team loves peer to peer lending and our staff have all invested their own personal money in one or more of the platforms. Lend Academy Media is part of Cardinal Rose Group which also owns LendIt, the leading industry conference, and has a majority interest in NSR Invest.

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