The Federal Reserve Bank of New York reports that household debt totaled $12.95 Tn last quarter – the 13th straight quarterly increase. As a share of GDP however, household debt stands at 66% below a peak of 87% in early 2009.
Bloomberg’s Julie Verhage reports that the Cleveland Fed removed a white papercritical of marketplace lending a little over one week after publishing it. The paper was pulled after criticism from the industry (we recommend Peter Renton’s analysishere to learn more).
FinTech partnerships continue. This week, PayPal announced an expanded partnership with Acorns Grow, the online robo-advisor allows users to automatically sweep funds into a brokerage account for automated investing. The strategy is similar to Alibaba’s Yu’e Baofund – a money market fund that sweeps cash from AliBaba’s payments affiliate, Ant Financial. The money market fund is now the world’s largest with over $165 Bn in AUM.
PayPal continues to expand the range of its consumer offerings. PayPal started with payments initially, moved to personal and small business loans, and is now delivering asset management solutions. The partnership will offer Acorns a unique channel for customer acquisition and allow Acorns to compete with Betterment and Wealthfront. Paypal led a $30 Mn investment round in Acorns Grow in April 2016.
In securitization news, LendingClub filed for its latest consumer loan deal, CLUB 2017-P2. This is LendingClub’s third deal of the year and the second deal with prime collateral. At $330 Mn, the deal sized similarly to CLUB 2017-P1 from September which we analyzed here. Also, KBRA upgraded all three classes of Earnest’s EARN 2016-B deal.
In related news, a new survey from Bain shows US consumers are increasingly willing to try financial products created by technology firms. Up to 73% of people aged 18-34 would try financial products from technology companies.
This week, we perform a deep-dive of TransUnion’s recently released study “FinTech: Fact or Fiction”.
FinTechs are Growing and Taking Market Share
As the chart below shows, FinTech lenders have been growing the personal loan market by expanding access to credit, and have also taken market share away from banks, credit unions and traditional finance companies.
Source: TransUnion
FinTech’s market share has grown from virtually zero in 2012 to 30% in 2016. The outstanding balances on personal loans have doubled to over $100 Bn in 2017 from late 2013, with 128 lenders making more than 10,000 personal loans annually. FinTechs compete with banks to originate loans to prime consumers, and FinTech’s originate 30% of their loans to non-prime consumers where there is less competition from banks.
FinTechs Have The Most Robust, Risk-Based Pricing
FinTechs are pricing risk in the personal loan market better than banks and credit unions are with the help of alternative data and an emphasis on data-driven origination. FinTechs show a much stronger relationship between credit risk and interest rates.
Source: TransUnion
FinTechs Generate Effective Portfolio Risk-Return Ratios that Exceed Banks & Credit Unions
FinTech’s portfolio return after adjusting for losses at the end of year one of the life of the loan portfolio is higher than that of banks and credit unions. FinTechs returned 8.7% at the end of one year on a risk-adjusted basis as compared to 6.7% for banks and 6.3% for credit unions.
Source: TransUnion
Finally, the TransUnion study also found that “stacked loans” have a 13% 60+ DPD delinquency rate after year one. Stacked loans are 4% more likely to be delinquent than unstacked loans at the end of one year. Lenders, investors and warehouse lenders are increasingly monitoring stacking via the “Fraud Prevention Exchange” to improve risk-adjusted returns.
The competitive landscape and credit performance in the lending market is vibrant and dynamic. Investors and banks are partnering with FinTech’s and need near-time market data to position their portfolios thoughtfully. PeerIQ’s is pleased to share that our Credit Trends product, developed in partnership with TransUnion, enables investors to identify trends and areas of the market that are priced for favorable risk-adjusted returns. Reach out for a demo or to learn more.
Conferences:
- CEO, Ram Ahluwalia will speak on the “A-Z of Securitizations Done to Date” panel at 11:50 AM IMN’s 3rd Annual Investor’s Conference on Marketplace Lending on December 1 in NYC.
- Chief Commercial Officer, Kevin Walsh will also be speaking on a panel at 2:20 PM titled “Improving MPL Liquidity and the Role of Securitization.”
PeerIQ in the News:
- Cleveland Fed Removes Report on Marketplace Lending for Clarification (Bloomberg, 11/20/17)
- GS Marcus Deep-Dive (PeerIQ), Rated: AAA (LendingTimes, 11/20/17)
Industry Update
- US Household Debt Reaches New Record as Some Delinquency Rates Rise(WSJ, 11/25/17) Consumer debt achieves $12.9 Tn, the 13th consecutive month of lending growth.
- How the Robot Revolution Could Create 21 Million Jobs (WSJ, 11/25/17) 21 new job categories may emerge from technological changes according toreport from IT-services and consulting firm Cognizant Technology Solutions.
- Goldman Sachs Faces Doubts About Loss Rates at New Online Lender(Bloomberg, 11/22/17) Marcus expects loan losses to be lower than what rivals are seeing.
- ABS: Earnest Student Loan Program 2016-B LLC Surveillance Report (KBRA, 11/20/17) KBRA upgrades ratings on Earnest Student Loan Program 2016-B LLC.
- Consumers Want Tech Firms to Take On the Banks (Bloomberg, 11/20/17) New survey from Bain & Co. shows nearly 60% of U.S. bank customers are willing to try a financial product from tech firms they already use.
- PayPal to Introduce Customers to Robo Investing (WSJ, 11/20/17) PayPal is expanding its partnership with automated savings and investment service, Acorns Grow.
- JPMorgan, Wells Fargo Form Company to Handle Partnership Vetting(Bloomberg, 11/14/17) As banks increasingly agree to tie-ups with FinTech companies, Wall Street firms including JP Morgan and Bank of America partnered to form TrueSight, to help banks streamline risk assessments of suppliers and partners.
Lighter Fare:
- A blockchain for turkeys is more than a Thanksgiving gimmick (MIT TechnologyReview, 11/23/17) Turkeys are the latest test subjects in a new experiment meant to see whether blockchain technology can be used to track birds from farm to market.