Report Archives - Lend Academy

OCC Announces Fintech Charter on the Heels of US Treasury’s Report on Fintech

It was a busy day in Washington as the OCC and the US Treasury both make announcements that will impact the future of fintech

July 31, 2018 By Peter Renton 1 Comment

The OCC Fintech Charter was formally proposed back in December 2016. Along with many other organizations we responded to their proposal in January of last year. Then a couple of months later the OCC released details on what the fintech charter might entail. Since then not much has happened. Until today.

Of course, the OCC went through a leadership transition with the new administration as former Comptroller of the Currency, Thomas Curry, ended his term in May, 2017. The OCC had a temporary leader, Keith Noreika, for six months until the current Comptroller, Joseph Otting, was sworn in. That was back in November and now eight months later the OCC has finally announced that they will begin accepting applications from fintech companies for this special purpose national bank charter. Here is what Comptroller Otting said about their new charter (from the press release):

The federal banking system must continue to evolve and embrace innovation to meet the changing customer needs and serve as a source of strength for the nation’s economy. The decision to consider applications for special purpose national bank charters from innovative companies helps provide more choices to consumers and businesses, and creates greater opportunity for companies that want to provide banking services in America.

Nat Hoopes, Executive Director of the Marketplace Lending Association, had this to say about the new charter (from Twitter): [Read more…]

The Cleveland Fed Retracts Their Report on “P2P Lending”

After much criticism the Cleveland Fed agrees that more work is needed on their report and they have pulled it from their website

November 20, 2017 By Peter Renton Leave a Comment

A week ago I wrote about the Cleveland Fed report on “p2p lending”. I use that term in quotes because as I said in the article, in reality it was not about p2p lending at all. Over the weekend the Cleveland Fed decided to pull the report and now they have this statement on the report’s webpage:

Since working paper no. 17-18 and related commentary on peer-to-peer lending were posted on our website on November 9, the authors have received several questions about the composition of the underlying data set they used in their analysis. In light of the comments received, the authors are currently revising their paper to further clarify the data sample they used in the study. Their revised paper will be posted as soon as it is completed.

This followed not just my article but also this highly critical op-ed in American Banker by Nat Hoopes, the Executive Director of the Marketplace Lending Association. He openly called for the Cleveland Fed to retract their report which is exactly what they did over the weekend.

The shame of all this is that all the sensational headlines have already been written and confirmed in many people’s minds the supposed shady nature of our industry. It would have been far better for everyone if the authors of this report had done their homework and produced a thoroughly researched report in the first place.

Now, having said all that, the report did bring up some interesting points. As Todd Baker pointed out, “we really should know which online lenders are adding to consumer financial health and which ones are detracting from it.” The P2P lending industry has been built on the premise that it is good for consumers and the recent study by the Philadelphia and Chicago Feds confirmed this to be the case. But that was just based on Lending Club data.

I am not so one-eyed that I will only believe positive studies on this industry. We need to understand consumer behavior better and every company should be able to answer definitively how and whether their products are benefiting consumers. That was what the Cleveland Fed study was trying to do but unfortunately they fell short. Maybe the revised study will provide more insight.

Oxera and P2PFA Release UK Report on P2P Lending

A new report on UK p2p lending was released at LendIt Europe.

October 10, 2016 By Peter Renton 1 Comment

oxera_p2pfa_uk_report

A groundbreaking new report is being released today at LendIt Europe 2016 in London. Titled “The economics of peer-to-peer lending”, the report was commissioned by the UK Peer-to-Peer Finance Association (P2PFA) and produced by Oxera. The 74-page report presents findings of an economic assessment focusing on the benefits and impact of the p2p lending industry.

With the FCA conducting their review of the P2P lending industry this report is clearly aimed at informing public policy. But rather than be a self-congratulatory piece with little substance it is a thorough analysis of the sector in the UK and contains information never before made public. The information presented includes data from the eight members of the P2PFA: Funding Circle, ThinCats, RateSetter, Lending Works, Zopa, MarketInvoice, LandBay and LendInvest.

Topics discussed in the report are:

Overview of how P2P lending works, explaining fundamental economics and potential misconceptions.
Benefits of P2P lending to both borrowers and investors.
How P2P platforms manage risk including credit risk, liquidity and platform risk.
Investor understanding in P2P lending.
Factors to consider during the regulatory review of the industry.

Christine Farnish, Chair of P2PFA is very pleased with the outcome of this report. Here is what she had to say:

This is a ground breaking piece of work for the p2p lending sector. Oxera’s analysis is evidence based and objective. They look specifically at the risks involved in p2p lending and how they are managed. Oxera’s conclusions are that mainstream platforms operate robust and resilient business models and offer investors and borrowers a good deal. The report should be of significant value to policy makers and regulators as the market develops further.

I read this report on the way over to London for LendIt Europe and I have to say I came away impressed. It goes into great detail about the different offerings from the major UK platforms dividing them into consumer, SME and property lending. Their data on interest rates, defaults and net returns are compared with traditional lenders and asset managers and the results are quite favorable for the most part.

There is an entire section on possible outcomes in a recession. There is a deep dive on Funding Circle’s data as they look at the results of their stress test. Zopa, the only P2P lender who has data from the last recession, shares their actual performance in the 2008-09 time period.

My favorite table in the report (reproduced below) shows every platform and the difference between their projected loss and their actual loss for 2013 and 2014. Most platforms are beating their projected losses handily, a great sign that their underwriting is solid.

Another fascinating table is the one that compares the total size of the P2P lending market to the total size of the overall lending market. It shows that P2P lending is responsible for 0.8% of overall lending in the UK.

This is the most comprehensive study on peer to peer lending focused on the UK market. Newcomers and seasoned industry professionals will both find value in the content of the report. You can download the full report here: The economics of peer-to-peer lending.