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LendIt Fintech News: Daily Coverage of Fintech & Online Lending


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Recent White Papers Covering Lending and Risk During the Crisis

We recently published two white papers to help lenders navigate the current crisis.

September 3, 2020 By Todd Anderson Leave a Comment

Views: 122

Coming out of the crisis will be hard work for lenders of all stripes. We recently featured two white papers that will help act as a guide on how to prepare for the future and ensure your lending operation is on solid footing.

Operational Efficiency in a Growing and Uncertain digital world – sponsored by Urjanet

What is this paper about?

Financial institutions face unprecedented business challenges as a result of the COVID-19 pandemic. It is expected that profit before taxes in the banking industry will drop from 50-100% as a result of misalignment of short-term revenue and expenses resulting from the fallout. According to TransUnion, over 100 million accounts showed signs of financial distress as borrowers deferred debt payments from March to June.

Between an increase in delinquencies, the abrupt shift to digital transactions, and unexpected surges in demand for credit, it is critical for lenders to incorporate data sources beyond traditional credit data.

This paper will explore the process of incorporating and expanding the use of alternative data to promote growth, minimize risk, and improve operational efficiency as banks and lenders recover during and after the COVID-19 pandemic.

Download

A Banking and Lending Guide to Crisis Recovery – sponsored by Salesforce

What is this paper about?

Banks and lenders have had to quickly adapt to changing regulations, work environments, and market conditions during the COVID-19 pandemic. In this white paper, learn how to build resilience, adapt to new regulations, and accelerate your bank’s growth in changing times.

Key Points:

  • Pursue growth by responding strategically to opportunity
  • Adopt an agile decision-making process
  • Reimagine office life
  • Adapt to your customers’ changing needs
  • Create lasting impact through community service

Download

Filed Under: Fintech Tagged With: credit risk, digital banking, lending, Salesforce, Urjanet

Views: 122

The Meteoric Rise and Spectacular Fall of Peer to Peer Lending in China

The world’s largest peer to peer lending market may soon cease to exist

October 23, 2019 By Peter Renton 3 Comments

Views: 2,663

When we started LendIt in 2013 I had no idea that China was a hot bed of peer to peer (p2p) lending. But there I found myself talking with several leaders from the Chinese p2p lending industry at the first LendIt back in June 2013. We did no advertising in China but many got wind of the event and traveled to New York City to be there. It was then that I found out the massive scale the industry had already achieved in the world’s most populous country.

I first wrote about the Chinese p2p lending industry later that year and introduced the west to CreditEase, the company that was the largest p2p lending platform in the world. Over the next couple of years the industry thrived with thousands of platforms launching and the total loan volume skyrocketing to over $150 billion in 2015, which was four times the loan volume of 2014. In hindsight, we should have known that kind of growth in a lending industry is not just unsustainable, it is highly risky.

China’s Biggest Ever Financial Scandal

We got the first inkling that something was not quite right when China was rocked by the biggest financial scandal in its history. Ezubao, one of China’s largest p2p lending platforms, collapsed as it was revealed the business was nothing more than an elaborate Ponzi scheme. Around 900,000 investors collectively lost $7.6 billion in what was the second largest Ponzi scheme the world had ever seen (Madoff being the largest).

But the industry rationalized this away as just one bad apple. The regulators had just announced draft rules for the industry at the end of 2015 and there was a sense that the strong platforms would adapt and continue to perform well. And that is what happened for the next year or so. But by 2018 serious problems began to emerge. That year ended up being the year of reckoning for the industry.

The p2p lending industry had grown to around 4,000 platforms at its height which everyone agreed was not a sustainable number. The weak platforms were not going to make it but the trouble was as they failed they often took investor money with them. While there was definitely some fraud there were also cases of platforms that meant well but were simply unable to make online lending work.

Life Savings Invested in P2P Lending

[Read more…]

Filed Under: Peer to Peer Lending Tagged With: China, credit risk, investing, LendIt China, online lending, Originations, ponzi scheme

Views: 2,663

New Report Covers Early Progress on Open Banking

A new report by LendIt Fintech looks at the current state of open banking and some early lessons learned.

October 17, 2018 By Todd Anderson Leave a Comment

Views: 201

Open Banking has been one of the most talked about topics in fintech over the past couple of years. In a new LendIt Fintech report we wanted to explore where open banking stands today and what the key issues are for banks, fintechs and service providers.

The report covers seven key areas of open banking: drivers and benefits of open banking initiatives, regulatory frameworks around the globe, financial functions targeted by open APIs, leading open banking players and their initiatives, collaboration strategies, risks and challenges and defining the path to success.

[Read more…]

Filed Under: Peer to Peer Lending Tagged With: AI, APIs, Blockchain, credit risk, data analytics, identity, lending innovation, Open Banking

Views: 201

Five Keys to Success for New Marketplace Lending Platforms

New companies are being launched all the time in the marketplace lending space. Here are five essential areas that startups need to focus on.

September 10, 2015 By Peter Renton 2 Comments

Views: 877

The keys of success

I hear from a lot of entrepreneurs who want to start a marketplace lending platform. They range from ambitious students with an idea through to seasoned entrepreneurs on their third or fourth startup. One of the questions I get asked most often is what are the most important things to focus on as a new platform in order to be successful.

I have learned a great deal from having conversations with the CEOs and co-founders of the most successful platforms in this industry. I also talk with large investors (both debt and equity) and discover what they look for when evaluating new platforms. Through all these conversations I have come up with what I consider to be the five keys to success for new marketplace lending platforms.

1. Credit Risk

We are in the lending business. This is the core of what every platform does. So, if this part of the business is not a primary focus then the platform has a limited chance of long-term success. By this I mean there should be, at the very least, a senior credit person on staff. Someone with not years, but decades of experience. This person should have assessed credit risk in a senior position at a bank or other finance institution. [Read more…]

Filed Under: Peer to Peer Lending Tagged With: credit risk, Keys to Success, marketplace lending

Views: 877

Partnering with FICO on a Credit Boot Camp Webinar Series

The free four-week summer webinar series will cover all aspects of consumer credit and is presented by FICO, Lend Academy and LendIt.

July 20, 2015 By Peter Renton 4 Comments

Views: 7

FICO_LG_COLOR

We did something new this year at LendIt USA 2015. We hosted a series of pre-conference workshops that went into more depth on a certain topic. The most popular of these workshops was the Credit Boot Camp run by FICO.

The bad news is that these workshops were not recorded. The good news is that we have decided to partner with LendIt and FICO to create a webinar series based on the content presented in these workshops. The series will cover all aspects of consumer credit and is designed for both platforms and investors who want to gain a deeper understanding of credit underwriting.

Starting this week, running for four weeks, is a webinar series that will take you through all the important aspects of consumer credit. Below are the topics covered and the timing for each of these webinars.

Inside the FICO® Score and Alternative Credit Data
Wednesday, July 22, 2015
10:00 am PT/1:00 pm ET
60 minutes

Hot Button Regulatory Trends for Online Lenders
Wednesday, July 29, 2015
10:00 am PT/12:00 pm CT/1:00 pm ET
60 minutes [Read more…]

Filed Under: Peer to Peer Lending Tagged With: alternative lending, credit, credit risk, FICO, online lending, underwriting

Views: 7

Two Significant Reports Just Published on P2P Lending

August 15, 2014 By Peter Renton 12 Comments

Views: 39

Yesterday, two major reports were published on the p2p lending industry. First, the Federal Reserve Bank of Cleveland put out a positive report on the future potential growth of this industry and the same day Fitch Ratings published a more sobering report on where the p2p lending industry stands today. Both make for some very interesting reading.

Federal Reserve Bank of Cleveland logo

First let’s take a look at the report from the Cleveland Fed. This is a quick read containing some very interesting graphs. It is focused on interest rates, particularly their comparison with average credit cards rates. I found the chart below interesting.

Credit card vs p2p lending interest rates

So, on average credit card interest rates have been significantly higher than the average rates at Lending Club. It appears that the Cleveland Fed did not use data from Prosper in their analysis. What is even more interesting is the fact that peer to peer loans have been performing slightly better than credit cards when it comes to the percentage that are delinquent.

On average, between 2010:Q2 and 2014:Q1, 3.2 percent of peer-to-peer loans were past due compared to 3.7 percent of standard consumer finance loans. Over this period, peer-to-peer loans had a lower share of poorly performing loans in 10 of 16 quarters.

The conclusion of the report is that p2p lending will continue to grow because borrowers find it an attractive alternative to credit cards and there is strong investor demand.

[Read more…]

Filed Under: Peer to Peer Lending Tagged With: credit risk, Federal Reserve, Fitch Ratings

Views: 39

Taking a Close Look at Lending Club’s Underwriting Changes

February 21, 2013 By Peter Renton 36 Comments

Views: 1,565

I was in San Francisco last week visiting Lending Club and Prosper. So I took the opportunity to sit down with the risk management team at Lending Club to delve into the underwriting changes they introduced late last year.

As Anil from Random Thoughts pointed out recently at first glance it seems that Lending Club has moved to a riskier credit profile. Given that Lending Club now allows borrowers with a bankruptcy or a current delinquency it is easy to see how one would get that impression.

But Lending Club said the changes have resulted in a better ranking of risk that should lead to a more conservative credit profile overall. How is that possible given the supposedly more lax underwriting criteria? They went through a whole presentation with me to explain these changes in detail.

A Brief Summary of the Underwriting Changes

Before I get into the detailed explanation let’s first look at some of the changes that were made. Many of the changes were detailed in the Random Thoughts post and you can always read the latest underwriting requirements in the Lending Club prospectus. Here are the five main changes:

  1. Maximum number of credit inquiries is now 6 for all borrowers (before it was maximum of 3 inquiries for FICO scores of less than 740 and up to 8 inquiries for scores of 740 or more).
  2. Current delinquency now allowed.
  3. Revolving credit balance maximum of $150,000 restriction removed.
  4. Major derogatory record (meaning a bankruptcy) now allowed.
  5. Maximum credit utilization of 98% restriction removed.

Swapping in and Swapping Out

According to Lending Club the latest underwriting changes did two things. It removed the highest risk borrowers that were previously being approved and it added back in the best borrowers from previously declined populations. This was obviously not a change that was taken lightly – a huge amount of analysis has gone into this decision.

[Read more…]

Filed Under: Peer to Peer Lending Tagged With: credit risk, Lending Club, underwriting

Views: 1,565

A Look Back at Prosper 1.0 – How Relevant are the Numbers?

February 13, 2012 By Peter Renton 56 Comments

Views: 262

Prosper launched with great fanfare back in 2006. For the first time in this country individuals could act like a bank and earn money from lending to their fellow Americans. Little did anyone know what would happen over the next three years.

It sounded like a great idea at the time I am sure – let the crowd decide what interest rates to charge and allow subprime borrowers to take out loans. But with hindsight we now realize it was a shaky premise. Even before the financial crisis hit Prosper was dealing with default rates well above their expectations. When Prosper closed down for their quiet period in October 2008 most investors were losing money on their investments. This first iteration of Prosper from 2006 until 2008 is what we call Prosper 1.0.

All Prosper 1.0 P2P Loans Have Matured

The last loan issued in Prosper 1.0 was in October 2008 so all of those loans have now reached maturity (they only issued three year loans). When we look at all Prosper 1.0 loans on Lendstats we see that Prosper issued 28,936 loans with 18,480 fully paid off and 10,456 loans that defaulted. This represents a default rate of 36.1%. In absolute dollar terms the performance was a little better (because most borrowers made some payments) – total dollars loaned out was $178,560,222 and total dollars written off was $46,671,123 – a loss rate of 26.1%. [Read more…]

Filed Under: Investing/Lending Tagged With: credit risk, Prosper, Prosper 1.0, ROI

Views: 262

How Lending Club and Prosper Set Interest Rates

November 7, 2011 By Peter Renton 10 Comments

Views: 2,038

When borrowers apply for a loan at Lending Club or Prosper there are probably two main things they want to know. Will they be approved for the loan and if so, what will the interest rate be.

It may seem like a bit of a mystery as to how interest rates are calculated but a lot of this information is readily available for borrowers.

Interest Rates at Lending Club

Lending Club is completely transparent when it comes to how they set rates. Everything a borrower would ever want to know is on Lending Club’s page titled Interest Rates and How We Set Them.  So if you know your credit report intimately you should even be able to work out your interest rate in advance. [Read more…]

Filed Under: Borrowing Tagged With: borrowing, credit risk, interest rates, Lending Club, Prosper

Views: 2,038

Why Many People are Still Hesitant About P2P Lending

October 5, 2011 By Peter Renton 58 Comments

Views: 995

Hesitant to take the plunge into p2p lendingI have been following the conversations about p2p lending on a few popular personal finance blogs in the last month or so. In the comments section I have noticed that many people claim to like the idea of investing in p2p lending but still haven’t taken the plunge.

Lazy Man and Money gave an update on his Lending Club investments that brought in several comments from prospective investors. Sam from Financial Samurai wrote this article on the Yakezie blog that also garnered many comments. Other recent blog posts that have prompted some discussion include Beating Broke, Sweating the Big Stuff and Bible Money Matters.

What is holding prospective investors back from opening an account with Lending Club or Prosper? The objections from potential investors on these blogs typically fall into one of these five categories. [Read more…]

Filed Under: Investing/Lending Tagged With: credit risk, investing, Lending Club, Prosper

Views: 995

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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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