A year after the Lending Club May 9th disclosures, investors and platforms are reflecting on the future of fintech.
PeerIQ held a panel discussion this Tuesday titled, “What’s Next in Fintech Lending” featuring speakers including moderator, Peter Rudegeair (WSJ), and panelists Ram Ahluwalia (PeerIQ), Zhengyuan Lu (Victory Park), William Black (Moody’s Investors Service) and Greg Nowak (Pepper Hamilton). Discussion centered on credit performance, regulatory developments, and company news. Access the full replay here.
Also, Michael Gilroy, a Cannan Partners VC, penned an op-ed in American Banker, “FinTech’s Future is In the Backend”. Michael argues that first-wave of fintech–Lending Club, Betterment, SoFi and Credit Karma–focused on consumer products. He goes on to argue that future innovation will come from less sexy financial services infrastructure focused on data and analytics, compliance and business intelligence. We wholeheartedly agree.
This week, multiple headlines involved bank charters and featured new entrants in the rapidly growing securitization market. SoFi CEO, Mike Cagney, announced that it is moving forward with an industrial bank charter application (ILC) next month. Cagney reports the goal of the ILC charter is not to fund loans, but rather to complete a product suite consisting of checking, deposit and credit card services.
UK-based Zopa became the first of the UK’s “Big 3” P2P lenders to gain full authorization from the Financial Conduct Authority (FCA) to offer Innovative Finance Individual Savings Accounts (ISAs) and retirement accounts. Zopa reiterated that they are working towards applying for a banking license and permission to become an ISA manager.
OnDeck released earnings this past Monday. The stock was down 7% on earnings day and, remarkably, trades slightly above book value, fueling M&A speculation and investor interest. Gross revenues and loan loss provisions were up 48% and 82% respectively from the prior year period. Tighter underwriting criteria slowed origination growth to 1%. Guidance for sale of loans thru the marketplace channel reduced from 18% to 5%. Balance sheet funding is now central.
Our interpretation is that OnDeck is taking actions that are at least consistent with pursuing a bank charter:
- Bank regulator friendly actions – OnDeck has gradually lowered rates over time, tightened underwriting, and announced a focus on profitability rather than growth (targeting 2018 GAAP profitability).
- Increasing bank executive on board and management – Seasoned banking executive, Jim Rosenthal (former COO of Morgan Stanley), joined OnDeck’s board. Seasoned banking personnel are a key requirement ahead of any bank charter approval.
- Continued focus on originating loans under the JPM bank-approved credit policy.
A PeerIQ analysis shows that a shift to deposit funding would create ~$30 to $40 Mn in savings by reducing financing costs from ~5.9% to funding costs observed in the brokered CD market.
On the securitization front, SoFi is bringing a consumer and student loan deal to market. Kroll assigned a AA preliminary rating to the senior class of notes in SCLP 2017-3, backed by $606 Mn of SoFi’s consumer loans, with $530 Mn of total debt issuance. Notably, S&P Global Ratings was tapped to rate the deal for the first time. SoFi also filed form ABS 15-G indicating plans for a second securitization deal this month consisting of student loans (SOFI 2017-C).
Prosper, continuing the theme of issuer-branded, issuer controlled, and multi-seller securitization programs, launched its inaugural securitization, Prosper Marketplace Issuance Trust 2017-1.
- PeerIQ CEO, Ram Ahluwalia, will speak on a panel from 1:15-1:45PM ET at the Plug and Play/Deutsche Bank Showcase on May 25th in NYC.
- Ram will speak on a panel at the Private Credit Summit on May 24th in NYC.
- Ram will speak at SCI’s 3rd Annual Marketplace Lending Securitisation Seminar on June 22nd in NYC.
- Access the replay from a panel discussion held at PeerIQ last week titled, “What’s Next in Fintech Lending here: https://lnkd.in/dV-JcjX
PeerIQ in the News:
- Monday May 8 2017, Daily News Digest (LendingTimes, 5/8/17)
- Marketplace Lending News Roundup (LendAcademy, 5/13/17)
- Fintech’s Future is in the Back End (American Banker, 5/10/17) Fintech’s future is in the back end—$241 Bn opportunity in the second fintech wave.
- Personal Loan Dealflow Revives (AB Alert, 5/13/17) With a flurry of securitizations from online personal-loan originators taking shape, industry participants debate whether the asset class has overcome its recent liquidity shortage.
- New York Joins Common State Licensing Platform for Fintechs (AmericanBanker, 5/11/17) The NY State Department of Financial Services announced it will allow fintech companies to register through a common platform used by a majority of state regulators, marking another step toward better regulatory coordination that will help states compete with the OCC’s fintech charter.
- Financial Technology is Proving Less of a Battleground Than Feared (Economist, 5/13/17) The relationship between banks and technology companies is becoming increasingly collaborative.
- SoFi Plans to Apply for a Bank Charter in the Next Month (TechCrunch, 5/10/17) SoFi is planning to apply for an industrial bank charter in the next month.
- With an IPO on the Shelf, SoFi Lets Employees Sell 20 Percent of Vested Stock (CNBC, 5/8/17) SoFi let employees sell 20% of vested options ahead of a future IPO.
- Elevate Credit Announces First Quarter 2017 Results (BusinessWire, 5/8/17) Q1 2017 saw 20% year-over-year revenue growth with Elevate generating net income and strong quarterly Adjusted EBITDA.
- Zopa Becomes the First of the ‘Big 3’ Peer-to-Peer Lenders to be Authorised by the City Watchdog (BusinessInsider, 5/11/17) Zopa has become the first of the UK’s “Big 3” peer-to-peer lenders to gain full authorization from the Financial Conduct Authority (FCA).
- Auto Loan Fraud Is Soaring in a Parallel to the Housing Bubble (Bloomberg, 5/10/17) Rising levels of hidden fraud will cause losses that will sting lenders but their the impact on the overall economy will likely be much more muted than with the housing crisis.
- SoFi President Nino Fanlo to Leave Firm for Biotech Startup (WSJ, 5/14/17) The No. 2 executive at online lender Social Finance Inc. is exiting the company to take a senior job at a biotech startup.
- Market’s ‘Fear Gauge’ Nears 1993 Low (WSJ, 5/8/17) Despite months of global political turmoil, investors are optimistic about the stock market, showing comfort in strong corporate earnings and signs that the jobs market is humming.