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LendIt Fintech News: Daily Coverage of Fintech & Online Lending


The Current State of the Small Business Lending Sector

We explore the fintech companies who are changing the way small businesses access financing today

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If you look back to the lending landscape over the last ten years, one of the biggest transformations has been in small business lending. Options for US small businesses were severely limited a decade ago and the options that did exist were arduous. Fast forward to today and there has been plenty of innovation. In this post we’ll highlight some of the recent trends and share just how small business lending is being transformed.

The Pioneers of Small Business Lending

The companies that I view as pioneers in this space are Kabbage and OnDeck. OnDeck was founded in 2006 and Kabbage in 2008, tackling small business lending at a time when virtually no one was looking to make improvements in the space. The companies are similar in that they both allow small businesses to get quick access to capital through an online or mobile application.

Over time we’ve seen OnDeck shift their business model from selling loans to investors towards realizing revenue from the interest spread. The company made waves several years ago when they announced JP Morgan Chase as a customer of OnDeck as a Service now known as ODX. That partnership has since dissolved but OnDeck still counts PNC Bank as a customer and there have been hints at new partnerships being announced in the coming quarters.

While powering the small business lending operations at the banks hasn’t caught on as fast as many had thought there is still a large market here and one that I think OnDeck still has the potential to capitalize on. OnDeck is also pursuing a bank charter which could eventually lead to the company serving small business customers outside of lending.

Kabbage also offers the Kabbage Platform and currently has ING, FleetCardsUSA, Sage and Santander among others as customers. Kabbage has focused on making life as simple as possible for small business owners with their direct lending operation. They have been pioneers in using alternative data combined with technology that has allowed them to fund small business customers extremely quickly (in a matter of minutes).

Kabbage recently acquired Radius Intelligence which has a database with 20 million small and medium sized businesses. Radius Intelligence’s technology will be integrated into Kabbage and their products will no longer be available to other customers.

Although Kabbage and OnDeck were early to small business lending there are many other names in this space with varying models and scale including Funding Circle, Streetshares, Fundbox, BlueVine, Biz2Credit, Fundation and Credibly to name a few. LendingClub also has a small business lending operation but they primarily work with partners Funding Circle and Opportunity Fund today to originate these loans.

The Challengers of Small Business Lending

[Read more…]

The Current State of the Real Estate Fintech Sector

We share recent news as it relates to innovation across real estate crowdfunding, digital mortgages and buying/selling homes.

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One area of fintech that doesn’t get as much attention as it should is real estate. It’s the largest lending category in the United States that still relies significantly on decades old technology. Over the years we’ve seen this sector transform from companies in the real estate crowdfunding area to companies tackling all sorts of interesting opportunities in real estate today. In this post we’ll provide a breakdown of each area and some of the interesting trends we’re seeing.

Real Estate Crowdfunding

Real estate crowdfunding has benefited significantly from the rebound of real estate since the financial crisis. These firms, although perhaps not as hyped as they used to be, are still a very interesting part of fintech. At the time when many companies in this space were founded, it was the first time that investors had direct access to real estate investment opportunities online, most notably in the fix and flip market. From my perspective we’re in a more mature phase as there has been some consolidation over the past few years with RealtyShares being the largest platform to cease operations. However, there is still very much an interest in income producing assets as we continue to be in a low interest rate environment.

The most recent news comes from Fund That Flip which recently raised an $11 million round from Edison Partners. Other notable achievements for platforms include LendingHome completing their first securitization. We also recently heard that PeerStreet, another popular platform crossed the $2 billion origination milestone. Outside of providing debt and equity to an online platform, a company called Roofstock is worth mentioning here. I recently had the chance to speak with CEO Gary Beasley to discuss their original offering which allowed for direct purchase of single family rentals and their new offering Roofstock One, which offers direct fractional ownership in income producing real estate.

iBuying and Improving the Buying/Selling Process

Many consumers are all too familiar with the pain points associated with buying and selling a home. This is the area that companies like Opendoor, Offerpad, Knock and Zillow Offers have targeted. These companies all fall under of a term which is being called iBuying. The individual business models of each company varies slightly, but they all focus on giving you a no hassle offer for your home so you can quickly sell your home without having to worry about realtors, showings etc.

Over the past few years a number of these companies have raised enormous amounts of money due to the capital intensive business they are in. While clearly there is significant investor interest in this category, Steve Eisman of The Big Short fame recently went on record stating that Zillow is over its head in their home flipping platform and doesn’t understand the real risks. It’s an interesting contrast to the success we’ve seen these platforms report. Not surprisingly, Zillow is currently one of Eisman’s shorts.

Other companies I’d lump into this category are those which help with home affordability. As real estate prices have increased, companies have stepped in to take the burden of large down payments off of the borrower. One relatively well known company is called Unison which co-invests with a homeowner when they are looking to purchase a home. Other newer companies include ZeroDown which recently raised $30 million. This platform is tackling high cost of living locations like the Bay Area and allows homeowners to buy a home with zero down.

Digital Mortgages

The most interesting area that fintechs are covering in real estate is the mortgage process. If you’ve bought a home recently I’m sure you would agree that there are areas for improvement in the mortgage process. Companies like Better, Blend and Roostify all have traction in this space. Most recently, Better closed an astonishing $160 million Series C round which included some interesting investors like Ping An, Ally Financial, Citigroup, American Express Ventures among many others. The company has now raised over $250 million for their growing business. The company expects to originate $4 billion in loans in 2019.

Blend, which raised $130 million back in June has taken a different approach, working with 150 lenders around the country. The company processes around $2 billion in loans every day. Personally, I can’t wait for new technology, no matter which fintech it is from to reach lenders small and large across the country. With all of the potential for API connections out there today there is no reason for so much manual work when it comes to the mortgage process. Over time, I expect that closing costs will come down as a result and that the actual mortgage process will no longer be the holdup to closing on a house. While I believe we’re on the right track there is still a long way to go with some of the largest mortgage lenders in the country today.

Conclusion

The above companies featured are just a handful of the ones that have traction in the US today and it’s going to be interesting to see which ones transform into household names. If you’re interested, some of the rounds highlighted above are tracked in our 2019 fintech funding Google Sheet which tracks fintechs that have raised over a $10 million this year. If you know of other companies doing interesting things in real estate I’d love to hear about them in the comments below.

Ten Years of Investing in Marketplace Lending

I look back at my ten years of involvement in marketplace lending and share the major changes I have seen in the last decade

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This month marks ten years since I made my first investment in what was then called peer to peer lending. In July, 2009 I transferred $500 in to LendingClub to give it a try. Little did I know that first small investment would end up changing my life.

I had first read about peer to peer lending back in 2008 and I was immediately intrigued. I discovered Prosper but when I tried to open an account there they were in a quiet period. So I went looking for an alternative platform and found LendingClub. Within a few months I added $10,000 to that initial $500 investment. Then, I became so enamored with the whole idea of peer to peer lending that I was soon rolling over 401(k) accounts for my wife and I, as well as telling all my friends about it.

It was just over a year later that I decided to start blogging about this industry. Back then no one was writing about it and I really believed the industry had so much potential. So, I started the blog that would become Lend Academy back in November, 2010. The more I learned about peer to peer lending the more convinced I became that it had tremendous potential.

In 2013 as the industry was getting ready to take off I started LendIt, along with my fellow co-founders. It was the first ever conference focused on online lending and the one day event sold out. Then came the go-go years of 2014 and 2015 where dozens of new platforms got under way and venture capital was flowing into the space. The industry had its biggest setback in 2016 with the LendingClub crisis but the strong platforms endured and industry moved to focus on profitability.

Now, as I look back on the last 10 years I see so much has changed. The industry is now known as marketplace lending (thanks to Charles Moldow of Foundation Capital) and it has driven a resurgence in consumer lending and small business lending.

Ten Ways Marketplace Lending Has Changed Since 2009

1. Scale [Read more…]

Direct Mail Boosts Fintech Traction

Direct mail complements digital, influences consumers, drives higher ROI

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[Editor’s note: This is a guest post from Mike Gunderson, Founder and President of Gunderson Direct Inc., a 15-year-established direct marketing agency that helps businesses drive new leads and close more sales through traditional offline channels, especially direct mail. Clients include Innovative fintech and peer-to-peer lending companies and top-tier financial companies. Clutch has recognized Gunderson Direct as a leading direct marketing agency in 2019.]

Used correctly, direct mail and digital communications make the perfect pair for Fintech companies. They complement each other, and both have unique strengths. That’s in part why direct mail is enjoying a resurgence in general and a surge in Fintech, with increasing numbers of companies looking to integrate direct mail into their marketing platforms.

At first, this can seem counterintuitive. After all Fintech is all about technology, and therefore should use technology tools to promote itself, right? Nope.

There’s a true story of an IT consultant who travels to clients’ homes. His receipts consist of handwritten carbon copies using carbon paper. When asked why, he responded that he speaks to his audience—largely seniors—in the way that’s most familiar, friendly and effective.

Judging by Fintech consumer response to direct mail, it appears that this methodology also is proving familiar, friendly and effective. The simple fact is that when direct mail lands in the mailbox along with a check, etc., there’s a much higher chance of being viewed and acted upon. Print is anything but dead.

And that’s not just the view of older audiences. Direct mail is being embraced as a robust marketing tool by all audience ages, including millennials. Marketing strategists and direct mail recipients alike see the value, regardless of age.

A 2018 Forbes.com article frames the discussion: “With more companies evaluating their ad spend and marketing budgets, many believed they should gravitate to advertising tactics like virtual reality, digital ads and boosted social posts. However, companies have discovered these ad tactics often don’t yield the same results as traditional marketing strategies.” [Read more…]

LendIt Fintech USA 2019 Industry Awards Finalists Announced

The winners will be chosen at the conclusion of LendIt Fintech USA 2019 on April 9th at the Industry Awards dinner.

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Throughout the year we often hear about many of the successes of fintech companies whether it be new partnerships, funding rounds, product innovations or the successes of the great leaders behind each company. It’s not often we get to stop and recognize the companies and individuals who are driving change in financial services. This is why LendIt Fintech created the Industry Awards.

Now in its third year, we are excited to announce the carefully selected finalists from the over 500 submissions we received. From here industry veterans will decide on the winner of each of the 20 categories. Winners will be announced at our awards dinner on April 9th at the Julia Morgan Ballroom in San Francisco. A limited number of tickets are still available for the dinner and they can be purchased on the LendIt Fintech website.

Congratulations to all of the awards finalists!

Fintech Innovator of the Year

  • Plaid
  • OnFido
  • Figure
  • ZestFinance
  • Stash
  • Varo Money

Executive of the Year

  • Steven Streit, GreenDot
  • David Kimball, Prosper
  • Tom Burnside, LendingPoint
  • Noah Breslow, OnDeck
  • Shivani Siroya, Tala

Fintech Woman of the Year

  • Jennifer Tescher, CFSI
  • Luvleen Sidhu, BankMobile
  • Yihan Fang, Yirendai
  • Andrea Gellert, OnDeck
  • Valerie Kay, LendingClub

International Innovator of the Year

  • WeLab
  • Borrowell
  • Yiren Wealth
  • Blue Motor Finance
  • LexinFintech
  • Innovative Assessments

Top Consumer Lending Platform

  • GreenSky
  • Prosper
  • Zopa
  • LendingClub
  • Marlette

Top Small Business Lending Platform

  • Funding Circle
  • Kabbage
  • BlueVine
  • OnDeck
  • Credibly
  • Lendio

Top Real Estate Platform

  • LendingHome
  • PeerStreet
  • Sharestates
  • Anchor Loans
  • Landbay
  • Roofstock

Top Fintech Equity Investor

  • Colchis Capital
  • CreditEase Fintech Investment Fund
  • Edison Partners
  • QED Investors
  • Upper90

Most Successful Cross-Border Partnership

  • Centre for Finance, Technology and Entrepreneurship (CFTE) and Ngee Ann Polytechnic (NP)
  • Kabbage and Alibaba
  • Kasisto and Standard Chartered Bank

Most Innovative Bank

  • BankMobile
  • Laurel Road
  • HSBC
  • NBKC Bank
  • Varo Money

Customer Alignment

  • JUMO World
  • Upgrade, Inc.
  • Aura
  • LendingClub
  • Oportun
  • Scratchpay

Top Law Firm

  • Goodwin Procter LLP
  • Morgan, Lewis and Bockius LLP
  • Ballard Spahr LLP
  • Buckley LLP
  • Manatt
  • Orrick

Blockchain Innovator of the Year

  • Figure Technologies
  • Symbiont
  • Global Debt Registry
  • Harbor
  • Hydrogen
  • Finastra – Fusion LenderComm

Top Service Provider

  • Deloitte
  • Experian
  • Wilimington Trust
  • Millennium Trust
  • First Associates

Top Emerging Technology Company

  • Narmi
  • Tally
  • Nova Credit
  • dv01
  • DebtTrader
  • CuneXus

Top Enterprise Technology Company

  • ThreatMetrix
  • Emailage
  • Blend
  • Marqeta
  • Roostify
  • TrueAccord

Most Innovative Mobile Technology

  • Dave.com
  • Clarity Money
  • AutoGravity
  • fonyou
  • Auto Payment Shopper

Most Promising Partnership

  • Amount and TD Bank
  • OnDeck and PNC Bank
  • Finicity, FICO and Experian
  • HSBC and SoftBank Robotics America
  • TransUnion and PeerIQ
  • BMO Harris Bank and SpringFour

Excellence in Financial Inclusion

  • Opportunity Fund
  • Oportun
  • MoneyLion
  • LenddoEFL
  • Insikt
  • Elevate Credit

Emerging Lending Platform of the Year

  • Upgrade
  • Qwil
  • Figure
  • Uplift
  • Better Mortgage
  • CircleUp

10 Fintechs Have Already Raised Monster Rounds in 2019

We share from our perspective the biggest rounds in fintech year to date and a page where we're tracking fintech funding rounds.

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We are only two months in to 2019 and it has been a fast start for investments in fintech companies both in the US and abroad. We came into 2019 after a strong year of fintech investments with about $40 billion invested globally according to CB Insights. All signs point to a strong interest in investments in financial services. While there have been dozens of rounds announced, there are 10 that stand out to us which are listed below.

Featured Fintech Rounds

  • Acorns
    • $105 million round led by NBCUniversal and venture arm of its parent company Comcast. NBCUniversal is now their largest shareholder.
  • Better
    • $70 million Series C from American Express Ventures and the Healthcare of Ontario Pension Plan (HOOPP). The company originated $1.3B in mortgages in 2018.
  • Figure
    • The $65 million Series B round was led by RPM Ventures as CEO Mike Cagney continues to show his fundraising prowess. Their valuation is said to be $365 million today about double the valuation from last year. Read our coverage here.
  • MarketInvoice
    • $72 million round was split between debt and equity. The funding round was led by Barclays and the venture capital arm of Santander. The debt facility came from Viola credit.
  • N26
    • The $300 million Series D round was led by Insight Venture Partners. N26 last raised $160 million around 11 months ago and has ambitions to enter the US.
  • OakNorth
    • The $440 million commitment comes from SoftBank’s vision fund and is Europe’s largest fintech fundraising. The company is valued at around $2.8 billion.
  • Raisin
    • Backers in the $114 million round include Index Ventures and PayPal.
  • Starling
    • The £75 million Series C round was led by Merian Global Investors, including the Merian Chrysalis Investment Company. The round included £15 million from an existing unnamed investor.
  • Stripe
    • Stripe raised $100 million from Tiger Global Management and is now estimated to be worth $22.5 billion. The round follows a $245 million round last fall.
  • Uplift
    • The relatively unknown company raised $123 million to provide point of sale financing to travelers. The company hopes to originate $1 billion in 2019. See our coverage here.

Noteworthy mentions:

  • Akulaku
  • Bud
  • Climb Credit
  • dv01
  • Nav
  • Nutmeg
  • Personal Capital
  • Petal
  • Tink
  • Yieldstreet

A New Resource From LendIt Fintech News

There are so many funding rounds and we wanted a place to keep track of them all. So we have created a spreadsheet and a dedicated page to fintech fundraising as we track rounds over $10 million that been announced starting January 2019. We include round size and source links so those interested can learn more about these fundraising rounds.

Conclusion

The trend we are seeing bodes well for fintech companies in 2019 and it will be interesting to see whether the industry can surpass the 2018 high water mark. The rounds included in this list and in our research point towards a maturing fintech industry as rounds are much larger than before and are mostly going to the more established fintech players. This is something we also saw in 2017 as a few rounds made up a significant amount of the volume.

2018 Was a Breakout Year for Banking/Fintech M&A

Led by rallying financial stocks, favorable policy developments and rising interest rates, 2018 was a big year for banking M&A

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While M&A activity in the banking sector for 2017 was relatively subdued, a Deloitte study released at the end of that year suggested that 2018 had the potential to be a big year for banking M&A activity. That suggestion wound up being an accurate one. Led by the rallying of financial stocks that helped stabilize and boost the value of companies’ capital war chests, more favorable policy developments that helped ease regulatory constraints, rising interest rates and the tax reform bill’s boost to bottom lines, banking M&A made numerous headlines throughout the year.

Many large financial firms that had been sitting on the sidelines since the financial crisis, spent 2018 actively exploring and completing some major fintech acquisitions or investments as the continued rise in technology innovation played a major role in this increased activity as well.

For fintechs, 2018 got off to a fast start and that early momentum was felt throughout the year. Two massive deals dominated the headlines as the $12.9 billion acquisition of WorldPay by Vantiv and PayPal’s acquisition of Swedish fintech firm iZettle for $2.2 billion most certainly set the stage for a big year.

The total number of retail banking deals globally was numbered at 287 through the first three quarters of 2018 according to White & Case M&A Explorer, which was broadly in line with previous years. However, these transactions were worth a combined $76.2 billion – a 25% increase over the first three quarters of 2017. [Read more…]

2018: The Year that Banks and Fintech Started to Figure Things Out

We look back on all of the significant bank and fintech partnerships struck in 2018.

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[Editor’s note: Please meet our newest contributor to Lend Academy. Mike McEnaney joined the LendIt content team late last year and this is his first feature article on Lend Academy.]

We were one year too late. At Lend Academy we predicted that 2017 would be the year of the bank/fintech partnership but it wasn’t until this year that we really started to see serious momentum. 2018 was a big year for bank/fintech partnerships and despite the fact some naysayers have claimed these partnerships are “doomed to fail”, the list of winners appeared to be much longer than the list of losers.

There was a powerful synergy being built between banks and fintech companies in 2018 that has the potential to lift the entire financial sector. While it may be true that banks can’t partner themselves into digital relevancy, their survival may well rest on these fintech collaborations and making sure they are structured with a win-win vision.

Banks win by gaining the ability to provide a far better customer experience, reducing their costs, increasing loan originations in various asset classes, providing more loans with no additional staff and ultimately increasing revenue. The win for fintech comes in the form of access to the loyal customer base banks possess, tapping into the deep financial services experience of banks and gaining greater familiarity with the regulatory environment.

As we begin 2019, the fintech/bank partnership landscape is also beginning to show some ROI as these collaborations are indeed increasing both top-lines and bottom-lines. Even financial institutions that once scoffed at the notion of these partnerships are now getting on board, and research shows that fintech will be an increasingly important part of their long-term strategic plans.

While the focus from bank execs may have initially been on navigating the fintech disruption, the focus now is far more centered on the positive impact a fintech partnership can have. A core need for banks today in this new era of finance is to engage their increasingly digitally focused customer base in new ways.

The road ahead for fintech/bank partnerships will be all about the melding of fintech’s agility and their ability to solve customer problems in innovative ways with the trust and reliability banks have built over their long and successful history.

There were dozens of bank/fintech partnerships formed in 2018, here is a list of just some of the more interesting ones from the US and UK:

HSBC & Avant

HSBC Holdings teamed up with Avant Inc., a closely held online lender, to offer unsecured loans to new and existing customers in the US.

PNC & OnDeck

PNC Financial Services Group’s PNC Bank will use technology from digital lender OnDeck Capital to extend loans to small businesses online.

Tandem Bank & Stripe

UK digital bank Tandem partnered with Stripe to power their new “Auto Savings” feature (created as a way to lower the barriers for Tandem app users who want to save for a rainy day.

JPMorgan & Plaid

JPMorgan partnered with Plaid in an effort to give its customers better control over their personal data.

Citigroup & Thinknum

Citigroup partnership with data startup Thinknum provides clients with alternative data sets; the data includes social media traffic, job postings, price and availability of products and more.

BMO Harris & AutoGravity

BMO Harris Bank is making car buying more simple and transparent for consumers by partnering with the auto-focused fintech AutoGravity. AutoGravity partners with banks to give car buyers direct control over how they finance or lease their cars while connecting them to a nationwide network of trusted car dealerships.

American Express & GreenSky

The two companies partnered to bring innovative point-of-sale lending technology to more merchants, enabling them to offer frictionless payment options to customers.

HSBC UK & Consents.online

HSBC UK is set to capitalize on the opportunities presented by Open Banking after agreeing to a partnership with consents.online, an Account Information Service Provider (AISP).

Starling Bank & UK Post Office

While this is not a bank/fintech partnership it was notable nonetheless because it was the first such deal in the UK with a digital bank. The Starling Bank partnership with the Post Office partnership will allow Starling consumer and business account customers to deposit and withdraw cash through the Post Office’s 11,500 branches nationwide.

Radius Bank & Mantl

The two companies combined to launch a new digital account opening platform, that allows  consumers to enjoy a frictionless account opening experience, reducing the time it takes to open an account to less than 4 minutes from any device

Goldman Sachs & Cadre

The two companies formed a strategic partnership to allow Goldman’s clients to invest in a broad-based portfolio of U.S. income producing commercial real estate assets.

BankMobile & Upstart

Bank Mobile “Powered by Upstart” is a SaaS lending platform that provides a complete solution — including borrower acquisition, underwriting, verification, and servicing — and requires zero upfront capital investment in technology.

KeyBank & Bolstr

This partnership enables KeyBank’s small business clients to streamline the process of applying for credit. And in turn, the Bolstr platform (a digital lending and SaaS platform) will enable KeyBank to digitally accept and process loan applications significantly faster and at a lower cost.

TD Bank with Flybits, Kasisto and Moven

TD Bank has seen their mobile app become number one in Canada for the finance category on iOS and Android; the bank has utilized fintech partnerships with Flybits, Kasisto and Moven to a build a new age banking experience

Blue Ridge Bank/Pioneer Bank & SoFi

The two community banks made the decision in 2018 to buy SoFi loans using Promontory Interfinancial Network’s service.

Fifth Third Bank & Commonbond

The pair partnered to help provide solutions to those customers with student debt, consolidating multiple private and federal loans into one easy payment.

Barclays and MarketInvoice

This was probably the most significant partnership announced in the UK last year. This multifaceted partnerships was formed to improve the way small and medium sized businesses in the UK manage cash flow and accelerate growth.

While 2017 may have fanned the bank/fintech partnership flames, the fire truly got going in 2018, particularly in the latter half of the year. Every bank in the country is now looking at how they are engaging digitally with their customers and what they can learn from fintech platforms. The momentum is not going to stop any time soon – leaving us all very much looking forward to what’s in store for 2019.

Fintech Predictions for 2019

My annual predictions for fintech and marketplace lending and a review of last year

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Happy New Year everyone. As I do every year at this time I make a few predictions for the year ahead as well as review my previous year’s predictions. I like this process because it gets me to focus on the hot trends that will shape the year ahead and also to review what I missed at this time last year.

Review of my 2018 Predictions

First, let’s review my predictions I made at the beginning of last year. While the fintech industry had a great year in 2018 my predictions fell short in many cases.

  1. Five top 25 banks will launch their own online lending platforms
    I would say I was almost spot on with this one. In the last year we have seen new platforms from a number of large banks: PNC Bank (small business loans – powered by OnDeck), HSBC (personal loans – powered by Avant), US Bank (small dollar personal loans built in-house), American Express (point of sale loans with GreenSky). Barclays also launched personal loans this year but this was officially announced late in 2017 so I can’t really include it.
  2. Two new pieces of legislation will be passed that will benefit the industry
    While we did not get the long awaited for Madden fix bill in 2018 despite bipartisan support or the IRS modernization bill it was left to the states to take the lead on legislation. Arizona became the first state in the country to pass a bill creating a regulatory fintech sandbox. Then California signed into law SB 1235 which requires consumer-like disclosures on small business loans and merchant cash advances. But I was really thinking federal legislation when I made that prediction so I will give myself a fail on this one.
  3. One of the top five (non-bank) online lending platforms will be acquired
    I thought this one was going to come true as there were some rumors during the year but we ended 2018 with no major online lending platform being acquired. Another fail.
  4. A major lending platform will get hit with a cyber attack
    I am happy to be wrong on this one. The industry suffered no major cyber attack.
  5. The tech giants consolidate their positions in online lending
    So, Amazon was probably the most talked about company in fintech this year but despite that no major news broke about new inroads into fintech from the tech behemoth. Square launched consumer lending with a big splash and filed paperwork to open its own bank. PayPal continues to expand its loan book and has raised its lending limit to $500,000. As this recent CNBC article says Square and PayPal are leveraging data to expand their lending operation while Amazon is still lurking.
  6. 2018 is the year of product line expansion
    The tone was set by Rob Frohwein, CEO of Kabbage, who said on the LendIt stage last April that monoline online lenders would go the way of the dinosaur. New products were announced by a large number of online lenders from Prosper (HELOCs), OnDeck (equipment finance), SoFi (SoFi Money), Kabbage (payments), MoneyLion (checking account), Upgrade (line of credit), Square Capital (personal loans) just to name a few. It was a breakout year for new products.
  7. Messaging apps start to get integrated into online lending
    This was my long shot prediction and it did not come to pass. While p2p payments are being incorporated into messaging apps we are not seeing loans yet, at least not in the US.

If I tally up my predictions here I probably scored about 3.5 out of 7, barely a passing grade. I will see if I can do better in 2019.

My 2019 Fintech Predictions

  1. Three companies will be approved for the OCC Fintech Charter
    Despite lawsuits from the states the OCC is pushing ahead with their new fintech charter. I expect several (I am going with three) new companies will apply for the charter and be approved.
  2. Three new fintech hybrid “bank” accounts will be launched paying more than 2%
    SoFi Money launched with significant fanfare in mid 2018. This is a hybrid checking/savings account and pays 2% interest (as of today). I expect we will see three new fintech entrants here in this space paying more than 2%. Despite the travails of Robinhood’s offering I think this will mark the beginning of the end of bank checking accounts that pay no interest and charge monthly fees.
  3. The tokenization of lending will begin
    Tokenization has become a bit of a buzzword in the blockchain space as everything from art, diamonds, stocks and real estate is being tokenized. But in the securitization space we have not even really begun yet. With the launch of Figure and the work being done by Global Debt Registry this is about to change. I am sticking with the number three as I think we will see three end to end securitization deals completed on the blockchain in 2019.
  4. Employer-based lending becomes a thing
    There is more awareness than ever about the importance of employee financial wellness. And in a tight labor market companies are always looking for ways they can offer new benefits to employees. We have had employer-based loan offerings enabled by companies like Kashable, HoneyBee and TrueConnect for some time but they have yet to gain wide traction. I think 2019 will be a breakout year for employer-based lending with dozens of Fortune 500 companies offering it as a benefit.
  5. Explainable AI hits center stage
    Artificial intelligence continues to be a hot topic in so many areas of finance and particularly in underwriting. We had the No Action Letter granted to Upstart in late 2017 which gained a great deal of attention. Now, many lenders, both online and traditional banks, are clamoring to incorporate AI into their underwriting with the big challenge being it needs to be explainable to consumers as well as regulators. Many lenders (more than 10) will have this in production by the end of 2019.
  6. Results-based lending takes off in student loans
    The student loan industry is moving towards a crisis. Student loan defaults are remaining well above 10% and have the highest delinquency rates of all the major loan categories. Something needs to be done and I think we will see a move towards results-based lending for student loans in 2019, This will mean many universities will adopt student loan programs based on the ROI of their degrees. This will be difficult to quantify but expect to read more about results-based student lending in 2019.
  7. The new major buzz word in finance will be quantum computing
    The idea of quantum computing has been around since the 1980s but it is only quite recently that the concept has come to finance. With the explosion in data sources in recent years finance now needs more computing power than ever to understand and make sense of this data. Serious research has already been conducted in this area and while I don’t expect a lot of practical use cases we will see quantum computing embraced as a concept throughout finance in 2019.

Now, there are many other trends that I have left out of this list but this is what I am thinking will be big in 2019. Let me know what you think. Happy to hear your feedback in the comments.

Equipment Financing Market to Get Boost From OnDeck

The small business online lending leader will offer equipment finance loans in 2019

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Hoping to transform the traditionally slow-moving, opaque, and complicated process of the equipment financing market, online small business lender OnDeck has announced it will enter the market for small ticket ($250,000 and under) loans in this category. OnDeck will offer loans online of up to $100,000 to U.S. small businesses beginning in 2019.

Here is what CEO and Chairman, Noah Breslow said in the press release:

With more than a decade of success and over $10 billion funded to small businesses online, we believe OnDeck’s technology is primed to revolutionize how small businesses finance their equipment needs. We expect OnDeck equipment finance loans to quickly become a vital source of online financing for small business owners seeking simple, transparent equipment financing they can understand and utilize.

OnDeck’s decision to add only the third lending product in its history is based on a successful pilot program begun last summer and resulting data indicating that the equipment financing market is vulnerable to disruption. According to the Equipment Leasing and Finance Association, 68% of all capital purchases in the United States are financed, with small-ticket (under $250,000) equipment finance loans and leases representing $35 billion in originations in 2017. Applying for and receiving the majority of those small ticket loans remains a cumbersome, time consuming and paper-based process. That is a similar scenario to the market for small business loans that OnDeck first began disrupting in 2008.

In 2019, OnDeck will begin making its own equipment finance loans, ranging from $5,000 up to $100,000, with terms ranging from 24 to 60 months, secured by new and used equipment. OnDeck plans to offer only equipment finance loans, rather than leases.

OnDeck also announced the appointment of Mark Erickson as Vice President of Equipment Finance. Erickson is a veteran of the equipment finance market, previously serving in executive roles in sales, operations, syndications, and risk at Key Equipment Finance, Inc., a unit of Key Corp. He was also the managing director of the firm’s Australia and New Zealand subsidiary from 2000 to 2004. He had this to say about his new position:

I look forward to working with the team to leverage OnDeck’s online originations and underwriting technology to deliver speed and convenience for small business owners seeking equipment finance loans. With speed, service and transparency, we are poised to transform this market to the benefit of small businesses.

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