Productivity Trends, Schwab Enters the Ring, LC Q3 Earnings

by | Nov 10, 2019 | Blog | 0 comments

Greetings,

Charles Schwab announced plans to enter the lending business. Earnings season continued this week with LendingClub reporting better than expected earnings. We’ll dig into those highlights below, but as always, we will start with the macro picture.

The labor department released the latest productivity data, which showed a contraction in productivity – a 30 bps decline in the recent quarter (vs +90 bps growth expectation), the biggest decline in 4 years. Economists have attributed the surprise decline to the ‘cat memes’ and Instagram. (#wekid.)

Below we show an excerpt of long-run productivity growth. Takeaways:

  • Long-run US GDP and productivity growth is at a lower trend level (2.3%) than observed during the 1960+ period (3.1%)
  • This means that the ‘speed limit’ for GDP and income growth is about ~2% (consistent with 10-year bond yields of ~1.9% – another rough correlation for growth)

Source: PeerIQ, Blackstone, St. Louis Federal Reserve

The Empire Strikes back

Charles Schwab is entering the lending business. Schwab will be getting into “different types of lending” that RIAs can offer, possibly including mortgage lending, unsecured loans for clients and loans to RIA firms, CEO, Walt Bettinger said. There is no timeline for the rollout of the new services, but Walt Bettinger stated that advisors would be “hearing lots more” in the coming months.

The move is the latest in the ‘convergence theme’ whereby banks, wealth managers, and FinTechs are rolling out offerings to maximize their share of the customer wallet.

In financing news, GreenDot (ticker: GDOT) is launching a fintech accelerator in partnership with Walmart. The accelerator dubbed ‘Tailfin Labs’ will develop solutions that “integrate omni-channel shopping and FinTech, which can be aimed at consumer or small businesses”. The offerings may be built on GDOT’S “Banking-as-a-Service” (BaaS) platform.

We mentioned last week that GDOT was the real winner in the Uber Money announcement, as the behind the scenes infrastructure provider for the ride carrier.

Deserve, a FinTech startup, led by CEO Kalpesh Kapadia, raises $50 million in funding led by Goldman Sachs.  Deserve is a lending-as-a-service infrastructure provider that sells their platform to firms that want to offer their own branded cards. Sallie Mae, Accel, Aspect Ventures, Pelion Venture Partners and Mission Holdings also invested in the Series C round. 

LendingClub Beats Earnings, Markets Expect Q4 GAAP Profitability

The earnings are a milestone in that it is the first time that LC experienced a positive adjusted net income since the turnaround Sanborn led since becoming CEO in 2016.

Some highlights:

  • Revenue also topped records at $204.9 million, up 11% year over year.
  • LendingClub crossed a record $3.3 billion in originations for the quarter, up 16% year over year
  • GAAP net loss of just $400,000 compared to the prior year period where they lost $22.8 million. Analysts expect Q4 GAAP profitability
  • Adjusted net income came in at $8 million, up from a loss of $7.3 million, in the prior year period.

LendAcademy has a nice write-up of their earnings here.

Keep an Eye on Shopify!

Shopify Capital originated $141M of Loans and MCAs in Q3. Shopify (ticker: SHOP) provides direct-to-consumer eCommerce websites for online. The lending business is similar in concept to Amazon’s small business lending, Intuit, PayPal, and Square Capital – take a platform business, utilize unique data and channel to originate loans and avoid marketing costs. The growth of these ‘platform lending’ businesses creates a more adverse selection risk for pure-play small business lenders. The Shopify lending business grew 85% YOY.

Prosper Has Launched a HELOC Product

FinTechs are rolling out additional products to diversify away from monoline lending. HELOC, a natural substitute for personal loans in a rising rate environment, are an excellent way to diversify. Consumer home equity is also now at record levels, although the customer experience to tap equity can be cumbersome.

Prosper is working with bank partners so there is no need to go to the capital markets for funding. BBVA is the first bank partner to Prosper. The platform will initially be available to customers in four states (AL, AZ, TX, and FL).

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