November featured several major developments on how banks are reacting to, and indeed embracing, marketplace lending.
Back in April, Jamie Dimon made news when he warned shareholders that “Silicon Valley is coming.” He noted potential advantages of marketplace lenders (speed, operational efficiency), but added that JPM will make its products “as seamless and competitive as theirs,” and would seek to partner with new lenders, “where in makes sense.”
Mr. Dimon has been moving quickly, investing in Avant’s recent $325M round in September, providing credit lines to marketplace participants, and last week, announcing a major new offering—in partnership with OnDeck—to extend online loans to its small business accounts starting in January. Big news. With all the talk of disruption, it can be easy to overlook the natural complement of marrying a bank’s low-cost of capital and customer acquisition capabilities with new online customer experiences.
This trend, of course, is not new. Citibank has the leading consumer securitization shelf (CHAI) with loans originated by Prosper. Dealers are shifting resources towards providing capital-efficient warehouse lines to institutional investors. And both Lending Club and Prosper have signed partnerships with large community banking associations.
This trend of partnership has scaled considerably and this month we saw the FDIC issue strong guidance for its member institutions about engaging with marketplace lenders. FIL-49-2015. Specifically, the FDIC noted the importance of underwriting and administering purchased credits as if the loans were originated directly, meaning that banks must:
- perform a complete analysis of credit risk of each loan and have a full understanding of the borrower’s market and industry;
- conduct an independent analysis and validation of any credit models used by third-party originators; and
- manage any third-party origination arrangements via effective third-party risk management processes.
These are not small burdens, which, at a minimum, increase costs for banks (particularly smaller banks) to access marketplace lending innovation. That said, we certainly believe that enhanced understanding of credit risk, modeling, and risk management must be embraced for the sector to grow steadily and responsibly. It’s what we do.
Hiring Update: Introducing Andrei Tapai and Vanessa Schept!
We are very excited to introduce two new members to our team.
- Andrei Tapai (Software Engineer): We dipped back into the Columbia University well to onboard Andrei, who’s works on automating and scaling our portfolio and securitization reporting capabilities. His coding precision may trace to his fencing skills: Andrei starred for Columbia’s 2015 National Championship Fencing team and competed internationally.
- Vanessa Schept (Executive Assistant): Vanessa joins us from the Neiman Marcus Group, where she worked in the online divisions of Neiman Marcus and Bergdorf Goodman. Vanessa is a recent graduate from Georgetown University’s McDonough School of Business, where she received her B.S. in International Business and Marketing.
We have an exciting new set of hires joining us next year, and we look forward to introducing them next month.
- On Deck Climbs Most Since IPO After Teaming Up With JPMorgan (Bloomberg, 12/2/15) Shares of online lender, OnDeck, saw a surge in trading after the announcement of its new partnership with JPMorgan. OnDeck and JPMorgan will be teaming up to roll out a new Chase lending product in 2016.
- NSR Invest Platform Aims To Open Peer-To-Peer Investing Marketplace To Advisors (Kitces.com, 11/30/15) NSR Invest launches offering to make P2P investment opportunities feasible for independent RIAs.
- LoanDepot Closes $150 Million Securitization Of Personal Loans (12/1/15, PRNewswire) LoanDepot hits a major milestone upon completion of their first securitization of personal loans with Jefferies.
- Bondholders Cheer New ABS Index (AB Alert, 12/4/15, subscription required) J.P. Morgan’s ABS Index is well received by asset backed bond investors who praise the range of capabilities that had otherwise been unavailable.