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PeerIQ Monthly Update: November 2015

By Vy Phan

December 1, 2015

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: 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. We have an exciting new set of hires joining us next year, and we look forward to introducing them next month. Sector Update