Tax season is coming to a close in the United States. Millions of Americans expect tax refund disbursements.
Hundreds of thousands of delinquent borrowers are expected to use refund proceeds to catch-up on delinquent mortgages and loans. The persistent seasonal impact of tax refund disbursements on cure rates underscores the fragile balance sheet position of millions of Americans, and is a reminder of the need for greater financial education and credit solutions.
JP Morgan CEO Jamie Dimon released his annual letter to shareholders highlighting technology partnerships and regulatory reform. Also, this week, public and private equity capital financing sprinkled the headlines. Elevate Credit tapped the IPO markets in an offering that generated net proceeds of $69 Mn. Upgrade, a new FinTech firm founded by Lending Club Founder Renaud Laplanche, raised $60 Mn in venture capital in the largest Series A for an online lender.
We examine Mr. Dimon’s annual letter and the Upgrade announcement in this week’s newsletter.
Jamie Dimon’s Annual Letter–FinTech and Excess Capital
It is now two years since Jamie Dimon famously warned in his annual letter, “Silicon Valley is coming.” Initially perceived as a call to arms, JP Morgan has since quietly struck partnerships with dozens of FinTech firms including OnDeck (SME Lending), InvestCloud (Robo Advisory), Roostify (Mortgage Tech), LevelUp (Payments), TrueCar (Auto Finance), Symphony (Communications) and plenty more.
Mr. Dimon’s lengthy annual letter highlighted the company’s increase in FinTech spending which now represents 10% of revenue–well ahead of industry peers including Goldman Sachs, Wells Fargo, and Bank of America according to a Bloomberg analysis. JP Morgan spent $9.5 Bn in technology firm-wide, $3 Bn in new initiatives, and $600 Mn on “emerging fintech solutions”.
The bulk of the letter focused on regulatory reform and policy. Mr. Dimon described as “extremely important” the need to re-visit post-crisis capital and liquidity rules which have prevented excess capital from funding the real economy. Jamie Dimon, while supportive of risk retention, also called for the rationalization of securitization standards. Specifically, he called for a regulatory framework to enable private capital to fund the GSE-dominated mortgage market.
JPM economists concluded that excess capital from the post-2008 regulatory regime has prevented over $1 Tn in private mortgage originations and has led to a drag in GDP growth of 50 bps over the past 5 years.
No topic was left unturned–from repo markets, to negative swap spreads, to declining dealer inventories–the letter exhibited technical range and supporting evidence.
Renaud Laplanche Gets the Band Back Together with Upgrade
Renaud Laplanche was notably absent from his usual opening keynote perch at LendIt this year. This week, the quiet is over. Renaud re-introduced himself and his new FinTech startup, Upgrade, to the lending industry in a press release widely covered by New York Times, Tech Crunch, and Peter Renton.
Renaud has assembled a familiar team that includes ex-Lending Club executives Jeff Bogan (now CFO), Adelina Grozdanova (Head of Investor Group), and Matt Wierman (Head of Personal Loans). The team also surprisingly includes Soul Htite, the current CEO of Dianrong, one of China’s largest lending platforms and a Lending Club Co-Founder.
On the equity side, Upgrade raised $60 Mn reportedly at a $120 Mn pre-money valuation–nearly as much capital raised as Elevate’s IPO. Investors include early Lending Club VCs such as Union Square Ventures and Uprising as well as Credit Ease, Ribbit Capital, Sands Capital Ventures, Silicon Valley Bank, Vy Capital, and Apoletto.
Upgrade features a familiar team, similar equity investors, and whole loan buyers including Jefferies and partner funding partner WebBank. The ensemble appears to be a message that counterparties impacted by the Lending Club May 9th disclosures have renewed confidence in the leadership team.
Renaud describes his ten years of building Lending Club as helping to shape the foundation for Upgrade. Here are similarities and differences to the Lending Club model:
Upgrade has also incorporated innovations and best practices from other originators. For instance, Upgrade intends to offer financial management tools that enable customers to monitor their credit. Additionally, applicants that fail credit criteria will receive financial education on improving the credit. On the underwriting side, Upgrade will also incorporate free cash flow analysis and incorporate anti-stacking technology.
More fundamentally, Upgrade is focusing on developing a relationship with the borrower before and after the lending transaction. We see this as a key area of focus for lenders in a world with intensifying product competition and shifting consumer payment priorities.
Conferences:
- CEO, Ram Ahluwalia will discuss Bank and Non-Banks: Competition or Partnership at a LendingTimes event on, April 18 at 6:00 PM at Manat Phelps & Phillips in New York.
- FRALLC’s Bank/Alternative Lender Strategic Partnership Summit on May 10-11 in New York. Ram will speak on the “Tapping Secondary Markets: Securitization & Liquidity” panel on Tuesday May 11 at 2:00PM.
Industry Update:
- Big Banks Poised to Scoop Up Fintech Startups, Report Finds (Bloomberg, 4/6/17) New report by PwC finds half of global finance firms plan to acquire fintech startups in the next 3-5 years.
- Banks Seek Judgment That Loans Facilitated By Online Platforms Are Exempt From Colorado’s Lending Laws (Orrick, 4/7/17) WebBank and Cross River Bank assert that loans they originated in collaboration with non-bank online lending platforms are exempt from Colorado’s statutory limits on interest rates and fees.
- Peter Renton interview with Zopa CEO Jaidev Janardana (LendAcademy, 4/7/17) Zopa’s CEO elaborates on plans to launch a bank. [Transcript]
- Fed’s Tarullo Opens Door to Changes in Stress Tests, Volcker Rule (WSJ, 4/4/17) Parting speech from the Fed’s regulatory guru outlines changes that could help big banks.
- The Real Reason Everyone Offered You Free Tax Prep This Year (WSJ, 4/7/17) As more Americans file their own taxes online, paid preparers seek to use customers financial data to offer other financial services.
- Renaud Laplanche, Ousted at Lending Club, Returns as Rival to His Old Firm (NYT, 4/6/17) Renaud Laplanche, former CEO at Lending Club, started new online lender, Upgrade.
- Elevate Credit Pops More than 19% in Trading Debut, after Pricing IPO Below Expectations (CNBC, 4/6/17) After postponing its IPO last year, Elevate Credit, went public on the New York Stock Exchange last week.
- Q4’16 Loan Originations Fall YOY for Digital Lenders, Capping off a Rocky Year (SNL, 4/4/17) The U.S. digital lending market has started to mature, with more focus on achieving sustainable growth and profitability.
- JPMorgan’s Head of New Technologies Hired by LendingClub (Bloomberg, 4/4/17) Santiago Suarez led JPMorgan strategy and new product efforts and will now join LendingClub.
- What Dimon Had to Say About Fintech in His Annual Letter (AmericanBanker, 4/4/17) JPMorgan CEO Jamie Dimon said the bank spent $9.5 Bn on technology in 2016 and is partnering aggressively with startups.
- Wall Street is Making it Harder to Buy a Car (Bloomberg, 4/7/17) Lenders are tightening credit standards in response to falling recovery values.
Lighter Fare:
- For Facebook and Google, the Best Way to Fight Fake News Is You (MITtechnologyReview, 4/7/17) The battle against fake news continues—but with new features from Google.