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Teaching the World About Peer to Peer Lending

The Differing Views on the Future of Cryptocurrencies

We share the wide variety of opinions on cryptocurrencies from big names in finance

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It is seemingly a daily ritual where we hear of the transformational potential of cryptocurrencies or the systemic risk they pose to the global financial system. The bigger question is does anyone really know where the market is headed in the long term?

The one aspect that many people can agree on is that the technology behind bitcoin and other digital currencies has huge potential. Blockchain technology can help to make transactions of all stripes more secure, transparent and verifiable. Industries currently testing use cases in blockchain technology include financial services, insurance, energy, supply chain, healthcare and even archaeology. It is seen as a way to make things more efficient for all participants in a transaction.

Cryptocurrencies on the other hand have not shown to have a whole lot of people in agreement on what they mean to the financial markets and how stable their pricing is.

Jamie Dimon, JP Morgan CEO, in a TV interview in New Delhi last month:

Right now these crypto things are kind of a novelty. People think they’re kind of neat. But the bigger they get, the more governments are going to close them down… It’s creating something out of nothing that to me is worth nothing. It will end badly.

Larry Fink, Blackrock Chairman & CEO, in a Bloomberg TV interview:

Most importantly, when I think about most of the cryptocurrencies, it just identifies how much money laundering is being done in the world. It’s much more of a speculative platform for Asia and it’s heavily used for money laundering… Related to cryptocurrencies, I’m a big believer in the potential of what a cryptocurrency can do.

Mike Novogratz, Galaxy Digital Assets Fund:

This is going to be the largest bubble of our lifetimes, you can make a whole lot of money on the way up, and we plan on it.

James Gorman, Morgan Stanley CEO:

Bitcoin is certainly something more than just a fad. I’ve talked to a lot of people who have. It’s obviously highly speculative, but it’s not something that’s inherently bad. It’s a natural consequence of the whole blockchain technology.

Axel Weber, UBS Chairman, at a conference organized by the Swiss Finance Institute:

I get often asked why I‘m so skeptical about bitcoin, it probably comes from my background as a central banker. The important function of a currency is, it’s a means of payment, it has to be generally accepted, it has to be a store of value and it’s a transaction currency. Bitcoin is only a transaction currency.

Christine Lagarde, Head of the International Monetary Fund:

Why might citizens hold virtual currencies rather than physical dollars, euros, or sterling? Because it may one day be easier and safer than obtaining paper bills, especially in remote regions. And because virtual currencies could actually become more stable. In many ways, virtual currencies might just give existing currencies and monetary policy a run for their money. The best response by central bankers is to continue running effective monetary policy, while being open to fresh ideas and new demands, as economies evolve.

Lloyd Blankfein, CEO and Chairman of Goldman Sachs, on Twitter:

The market has taken all this commentary and continued to grow at a substantial pace in 2017. As of this writing we have seen more than 55 crypto focused funds and over 175 initial coin offerings or ICOs. The market cap of digital currencies exceeds $140bn and according to CoinMarketCap there are well over one hundred tokens available for trade.

Recent regulatory guidance, from China banning ICOs and cryptocurrencies to the Securities and Exchange Commission issuing a report and filing charges at what they called a fraudulent offering, has only affected pricing in the short term.

I think the likes of Bitcoin, Ethereum, Ripple and other well established tokens have shown their staying power. The bigger long term question is will worldwide regulatory bodies begin to put more structure around the market or will these currencies still operate in the decentralized non-conforming manner in which they were originally created.

Banks Going Digital – Transforming Branches, Apps and a Focus on Customer Experience

Banks know they must go digital and many are embracing new technology to improve the customer experience

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In Austin last week American Banker hosted their annual Digital Banking Conference where banks of all sizes gathered to discuss the innovation in banking today. There were a few main themes that came out of the event; banks are focused on transforming the customer experience, mobile first approaches are prevalent and technology solutions like AI and cyber security are becoming must haves within the bank.

The big banks have all started to understand that the traditional way of banking is a thing of the past. Keynote speaker Yolande Piazza, CEO, Citi Fintech talked about disrupting from within, changing how they operate to enable the customer and move to a mobile first approach. She explained how this approach is radical for a bank and the layers of compliance did not make the transition smooth. They have completely rethought how they hire, 50 percent of their fintech talent is from outside the company. They have looked towards fintech and technology companies to fill their pool, while the banking talent comes from within.

Consumer oriented experiences really drove a lot of the conversations at the event, banks and the vendors were all talking about how to best utilize the consumer’s time when they engage. Mobile apps seem to have become a bit of a competition among the banks, though some would describe it more as a competition of experience and not necessarily as a competition between different banks. No longer are banks looking to drive where the customers should go, they are looking for the customers to drive what they want in the experience.

Consumer experience is not limited to the digital channel; banks and companies like Samsung are also focused on changing the way people interact within the branch. In speaking to Reginald Jones, Director of Sales for Regulated Industries, he talked about how the consumer electronics giant is working with banks to help change the way people think and interact with their local branches. [Read more…]

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…]

New Report on Bank Partnerships with Fintech Companies

The new report, commissioned by Manatt, shows that collaboration is the likely way forward for banks and fintech companies

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manatt-report-on-bank-partnerships

A new report released today by the law of firm of Manatt, Phelps & Phillips, LLP shows that community and regional banks are very open to partnering with Fintech companies. The report is based on information gathered in a survey of 75 executives from banks, Fintech companies and private equity investors. While the survey size is very small the findings are still quite interesting.

The main thrust of the survey is that banks are far more open to partnering with Fintech companies than ever before. This is a trend that began many years ago and seems to be accelerating today according to this report. Here are some of the key findings of the report:

  • Banks are on board with fintech. At 81%, the overwhelming majority of regional and community banks are currently collaborating with fintechs. In addition, 86% of regional and community bank respondents said that working with fintechs is “absolutely essential” or “very important” for their institution’s success.
  • Lower costs + a better brand = a win-win. For regional and community banks, enhanced mobile capabilities and lower capital and operating costs were highlighted as the benefits of collaborating with fintechs. Fintechs named market credibility and access to customers in regional markets as the main benefits to partnering with banks.
  • Data security remains a challenge. Both banks and fintech companies are highly sensitive to the ways in which data is shared and secured. This means extra attention must be paid to cybersecurity when the two sides collaborate—especially given the cultural mismatch that can exist between them. Despite the optimism among banks for collaboration, preparedness is a large concern. Almost half of regional and community bank respondents said they are just “somewhat prepared” or even “somewhat unprepared” for this kind of partnership.
  • Regulatory concerns remain paramount. For banks and fintech firms, structuring relationships that are regulatory compliant, including, if required, prior regulatory approval, is critical to ensuring success and the opportunity to change the way financial services are ultimately delivered.

So, assuming this report is representative of the attitudes of all of banking we can expect far more collaboration in the future. I think this is good news.

[Read more…]

Should Fintechs become Banks?

In this guest post the author delves into the relationship between regulation and innovation comparing fintech companies and banks.

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[Editor’s note: This is a guest post from Alex Cooper, Founder and CEO of Rezzcard. Alex is a fintech innovator and social impact entrepreneur focused on delivering financial services through technology to promote financial inclusion.]

I recently attended the MPL Summit in Washington DC. It was the first ever policy conference for the Marketplace Lending (MPL) Industry hosted by Boston University Center for Finance, Law & Policy and Cross River Bank. The goal of this inaugural event was to create a dialog and consensus among industry participants including online lenders, banks, consumer advocates and regulatory agencies.  The desired outcome is a framework that would lead to best practices and proposed guidance to regulators for supporting responsible innovation in marketplace lending.

I am fascinated by the MPL industry, how fast it has grown, its dynamism in creating new lending models and ability to leverage the capital markets to fill the void in the consumer and small business lending sectors. 

I was surprised by two things I observed at the MPL summit. First, only three banks were in attendance including the host organization. Second, one of the main federal banking regulators, the Office of the Comptroller of the Currency (OCC) and its leader Thomas Curry, announced that that they were exploring the possibility for granting limited-purpose bank charters to fintech companies engaged in banking activity. In his remarks, Curry said;

If a firm merited a federal bank charter, the question would be resolved as it would be squarely under the primary federal supervision of the OCC…. Some have suggested that federal charters could ensure that fintechs engaging in banking activity receive rigorous, bank-like federal regulation and ongoing supervision.

The following link will give you access to the full text of his remarks.

The talk of regulating fintechs has been in the air for a while. In fact, fintechs are subject to a myriad of regulations, the same as banks or other companies that lend money or are in other money service businesses. But making them federally regulated through a bank charter, in my opinion that’s a bombshell! [Read more…]

Goldman Sachs New Online Lending Platform Will be Called Marcus

The New York Times is reporting that the new consumer lending platform from Goldman Sachs will be called Marcus and will launch in October

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Goldman_SachsAccording to the New York Times the long awaited online lending platform from Goldman Sachs now has a name: Marcus. This name was chosen in honor of one of the founding partners of the firm, Marcus Goldman.

We first wrote about the new Goldman Sachs initiative in June of last year. The new platform has long been known as Mosaic and details have been very hard to come by but as Goldman gets closer to a launch date more information is slowly coming out.

Goldman has been building out its online lending platform since early last year. They hired Harit Talwar, a former executive with Discover, to lead the effort and they have also been looking to hire people from Lending Club and Prosper. They supposedly have built a team of around 100 people now – a much larger pre-launch team than any other company I have come across.

[Read more…]

Banks and Marketplace Lending Platforms: Ideal Partners?

We detail the many partnerships announced between banks and marketplace lending platforms and look to the future.

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Bank partnerships are nothing new when it comes to the marketplace lending industry. As the industry has continued to mature we’ve seen an increase of these partnerships and, despite recent challenges, we will undoubtedly see more in the near future. As we’ll outline below, some of the partnerships have to do with renting a partner bank that has become a common strategy for marketplace lenders.

Other banks are looking to form a deeper relationship with online lenders to better serve their existing customers. To this end banks have three options: build, buy or partner. While we haven’t yet seen a bank buy a marketplace lending platform, both Wells Fargo and Goldman Sachs have built or are in the process of building out their online lending platforms.

Finally, some banks are also investing in loans directly for the yield. For Lending Club and other marketplace lenders banks have been a sizable source of capital. However, following the news surrounding the departure of the former CEO of Lending Club Renaud Laplanche many banks pulled back. We saw firsthand that of all types of investors banks are the slowest to move due to lengthy due diligence processes. While the initial shock certainly affected Lending Club and perhaps other marketplace lenders Lending Club has made some progress in bringing banks back into the fold.

Below are is a rundown of some of the significant bank partnerships in the marketplace lending industry.

Marketplace Lenders and the Rent a Partner Bank Model

One of the most important way marketplace lenders partner with banks is through an origination partner. An example of this is Lending Club and Prosper’s partnership with WebBank, a Utah based chartered industrial bank. Under this model the loans are first originated by Web Bank and sold back to Lending Club or Prosper after a short amount of time. There are many advantages to this model for the marketplace lender but the end result is that all loans issued in this model must adhere to all federal banking laws.

A slightly different take on this model is the partnership between Marlette and Cross River Bank, another partner bank similar to WebBank. With this partnership Marlette and Cross River Bank completed a $100 million securitization in which both companies shared a 12.5% equity tranche. Cross River Bank are strong believers in having “skin in the game” so they keep a piece of every loan they issue in that relationship. They also work with many other marketplace lending platforms.

OnDeck and JP Morgan Chase

The biggest announcement to date when it comes to bank partnerships is where JP Morgan Chase is partnering with small business lender OnDeck. The partnership between JP Morgan and OnDeck is a massive opportunity. JP Morgan boasts 4 million small businesses and OnDeck has the technology and infrastructure to underwrite them. The platform launched on a limited basis in April, 2016 and while there hasn’t been any news since then I’d expect we will hear an update on the progress shortly.

Kabbage and Santander, ING and ScotiaBank

Santander UK announced in April 2016 their partnership with US based small business lender Kabbage. For Santander’s small business customers the partnership gives them quicker access to credit. For Kabbage this was not only significant due to Santander being a well known bank, but it also marked their entrance into the UK market. Other partnerships that Kabbage has entered into include their partnership with ING to initially extend credit to ING customers in Spain and a partnership with ScotiaBank to do the same in Mexico and Canada. [Read more…]

Do We Need Bank Branches?

An article in American Banker says that large bank branch networks are here to stay. I point out why this will likely not be the case.

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Small Community Bank branch

There was an article published in American Banker yesterday titled, Bank Branches Don’t Die, They Evolve. For those who don’t have access to the article let me summarize.

The author is basically saying that people of all ages like to deal with real people, particularly when it comes to finance. And while they may not visit a branch much, or at all, the fact that it is there is what really matters. People “want and deserve to personally interact with other people when it involves their finances.”

The author went on to say that the argument was made 30 years ago that branches would become obsolete but the fact is that branches are still alive and well today.

Not exactly. The number of bank branches has been in a steady decline for many years. According to this Washington Post article from April the World Bank predicts that the number of branches in the US by 2025 will drop 33% from their 2004 levels. In Europe that number will be 45%. Clearly the number bank branches is in decline.

The author ended the article with this quote that he initially wrote 30 years ago that he argues is still just as true today and will also be true in 20 years time: [Read more…]

Dinosaurs and Banks

Are banks doomed to extinction? In this guest post, QED's Caribou Honig gives his take on whether banks are going the way of the dinosaur.

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[Editor’s note: This is a guest post from Caribou Honig. Caribou is one of the founding partners of QED Investors, a FinTech focused Venture Capital firm, that has made several investments in the marketplace lending space.]

American Banker recently published an article on the prospects of Banks vs. FinTech arguing the scale and long history of Banks would lead them to prevail. As a former bank executive and now partner at a FinTech venture capital firm, I see the battle fought every day and read the article with keen interest. I believe it overstates the importance of scale and experience, and it reminds me of a similar argument for your consideration:

Dinosaurs vs. Mammals?  No contest, Dinosaurs Win.

The post-meteor rise of mammals in recent years is nothing short of remarkable.  The media headlines charting mammalian progress in just the past year might even have you think that the end of the age of dinosaurs is here.  But that assessment is dead wrong.

What is often overlooked is how much mammal’s advancement relies on the established dinosaur ecosystem.  Yes, innovations such as fur and live-bearing of young are driving much of vertebrate evolution.  But dinosaurs are — and will remain — squarely at the apex of the animal kingdom for some time.

Here are four reasons why mammals still face big challenges in competing with dinosaurs.

Dinosaurs have been around (and so have the flora they eat)

Dinosaurs have been the dominant family (among those with backbones) for 200 million years and will continue to be so well into the future.  They are far too ingrained within the ecosystem to be removed within any foreseeable time frame.  There’s a history of symbiosis between dinosaurs and plants that mammals are still eons away from rivaling. [Read more…]

The Most Important Marketplace Lending News Stories of 2015

There were many big stories in 2015, here is our annual retrospective of the last 12 months.

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At the end of every year I like to look back at the biggest stories that made news in the previous 12 months. As the sun sets on 2015, it will be remembered as a banner year for marketplace lending with all the major players experiencing a great deal of success. The rapid growth continued unabated, many new partnerships were forged, new innovations developed and many new entrants launched.

It was a year with countless big stories. Below are my top 10 news stories that we published on Lend Academy in 2015.

1. An In Depth Look at the OnDeck/JPMorgan Chase Deal

This was the biggest story of the year in my opinion. We have this country’s largest bank, Chase, partnering with our industry’s largest small business platform, OnDeck. Chase decided they did not have the expertise or the inclination to build an operation themselves, so they have partnered with OnDeck to provide the underwriting engine and servicing for small business loans that Chase might not otherwise make. More coverage of this story is in The Wall Street Journal.

2. A National Tragedy With a Link to P2P Lending

This article is near the top of my list, not because I think it is a significant story in itself, but because it was so widely reported. The mainstream press covered the story of the San Bernardino shooters taking out a Prosper loan more than any other story in our industry’s history. There were literally thousands of articles written about this, many with glaring inaccuracies unfortunately, so I felt the need to set the record straight. More coverage of this story is in Bloomberg.

3. Goldman Sachs Is Entering P2P Lending Becoming the 1st Bank to Launch a Platform

I don’t think many people, myself included, expected the first major bank to build their own online lending platform to be Goldman Sachs. Even though this story is from June there has still been no official announcement from the firm but they appear to be building out their platform and readying for a launch some time in 2016. More coverage of this story is in The New York Times.

4. Responses from the Treasury RFI on Marketplace Lending

[Read more…]

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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