Articles by deBanked Staff
On the Road to Recovery? Lending Club Shrinks Quarterly Losses, Announces Major Loan Buyer
November 7, 2016
Is Lending Club on the path to recovery, yet?
The marketplace lending company’s Q3 loss of of $36.5 million paled in comparison to the $81.4 million loss in the previous quarter, but the improvement is not as significant as it looks. That’s because Q2’s extremely poor showing was largely a result of the $35.4 million goodwill write-down of Springstone Financial and one-time “unusual expenses” related to an internal investigation into the previous CEO’s scandalous exit.
The $36 million loss is a far cry from the profit they turned in Q3 of last year however, but that spread is also deceiving. That’s because $20 million of it can be attributed to still more one-time costs related to Laplanche’s departure and an additional $11 million is due to incentives paid out to money managers to buy their loans. They stopped paying out incentives at the end of August.
Operating revenue grew 10 percent QoQ from $102.4 million to $112.6 million, but shrank by 2 percent annually from $115.1 million.
The stock closed up 15% on the day, but it’s still down more than 60% from the IPO price. The day’s rally was bolstered in part by an announcement that a US subsidiary of National Bank of Canada, Credigy, agreed to buy up to $1.3 billion worth of loans through the Lending Club platform over the next twelve months.
Loan originations grew marginally – $1.97 billion, up 1 percent from $1.96 billion in Q2, down 12 percent compared to $2.24 billion last year.
“I am very pleased with our performance in the third quarter. We actively reengaged with investors of all types to deliver on our plan and enable $2 billion in loan originations,” said Lending Club’s President and CEO, Scott Sanborn in a statement. “While we’ve made incredible progress, there is still work to be done. In the months ahead we are focused on increasing the diversity and resiliency of our funding mix, realigning our resources, and regaining our operating rhythm.”
At the Money 20/20 event last month, Sanborn announced that the company will foray into the $40 billion auto refinance market and said that he remains bullish about the company’s future in this new venture. The marketplace lender is offering loans in the range of $5,000 – $50,000 with APRs ranging from 2.49 percent to 19.99 percent for terms up to 72 months.
The third quarter has been an eventful one for the company which saw some management shuffle too. CFO Carrie Dolan was replaced by Thomas Casey, former CFO at the medical device company, Acelity. And, citing high delinquencies, the company also raised interest rates by a weighted average of 26 basis points, with high a concentration on F and G grade loans, in October.
One major cause for concern, however, remains to be the thinning retail investor base. While the company expanded its investor base to 142,000 active individual investors, investment was down to $273 million in the third quarter, from $327 million in Q2.
As OnDeck’s Stock Hits Record Low, Is There a Renewed Confidence in the Broker Channel?
November 6, 2016
OnDeck traded below $4 on Friday, a new all-time low that came in the wake of the company’s earnings announcement just the day before. Apparently, the company’s record-breaking $613 million in quarterly originations was not the assurance that investors were looking for.
Their report showed that more of the company’s loans are staying on their balance sheet and notably, there’s been an increase in the percentage of loans sourced from brokers. 27% of the dollars originated in Q3 came from brokers versus only 24.5% during the same period last year. Meanwhile, the raw number of loans originated by brokers is up from 18.6% to 20.2% in Q3 year-over-year. These are still substantially lower than previous years. For instance, brokers originated 41.4% of dollars in 2014, 56.54% in 2013 and 75.1% in 2012.
OnDeck refers to brokers as “funding advisors” in their reports, with company CEO Noah Breslow noting that this channel has grown 40% year-over-year, almost twice as fast as their direct and strategic channels. Analysts took note and Brian Fitzgerald from Jefferies asked why this was occurring on the morning call. Breslow responded by saying that it wasn’t due to any intentional reallocation of resources among the channels.
“So at any given quarter you may see a push/pull on the relative growth rates of the channel but I would say that we’re not sort of allocating resources or dollars between channels and the channels really are competing for resources internally. So I think the dynamic in funding advisors frankly, is a positive. We took that channel down last year, we did a pretty aggressive recertification. So we’re working with a lot fewer partners than we did a while back and on the flip side, those partners are higher quality and we’re seeing better originations now from them; and we’ve really optimized our conversion rates with a number of those partners. So we feel we feel pretty good about that.”
Also discussed on the call was OnDeck’s partnership with Barbara Corcoran, in which it was said that the company is sending out direct mail using her name and likeness to promote the company. Her TV commercials have already been making the rounds.
And just as signing on Shark Tank stars as partners probably doesn’t come cheap, Breslow suggested that the industry competition had really been narrowed down to the players who had already made hundreds of millions of dollars in loans.
“I think it’s fair to say that the very early stage start-ups or the subscale players are increasingly having a little bit more trouble competing, so we are seeing the preponderance of some of the marketing activity coming from folks who are a little bit larger in scale. And my sense is that continues and that’s going to consistent with the overall trends that people have seen. So the folks who are buying marketing at this point are folks who have loaned hundreds of millions of dollars as opposed to tens of millions of dollars, and I think the VC environment for these types of companies remains pretty challenging.”
OnDeck Earnings: Originations Grow 27%, Continue to Predominantly Use Own Balance Sheet
November 3, 2016OnDeck recorded a GAAP net loss of $16.6 million for the quarter ending in September, down from a $3.7 million profit during the same period last year. The firm’s net revenue also plummeted 30 percent to $32.3 million, even though gross revenue was up 15 percent to $77.4 million. The shift is largely a consequence of moving away from gain-on-sale marketplace revenue to interest income. Only 16.6% of term loan originations in the third quarter were sold or designated as held-for-sale through their marketplace.
The company originated more loans this quarter compared to a year ago, with origination volumes rising 27 percent to a record of $613 million. Loans under management also increased 44 percent annually to $1.1 billion.
OnDeck grew its direct and strategic channels by 23 percent year-over-year. Its funding advisor channel grew 40 percent during the same period.
“During the quarter, we continued to diversify and expand our funding capacity, and we are actively engaged in the process of bringing new funding sources online,” said CFO Howard Katzenberg in a statement. “We remain confident in our unique model and track record of performance, which we believe positions us well for further growth, improved operating results and continued access to the capital markets.”
The company also recently lost one of its sales frontmen, senior vice president Zhengyuan Lu who joined Chicago-based alternative finance-focused investment firm, Victory Park Capital.
At Money 20/20 recently, OnDeck chief Noah Breslow said that the company will remain focused on small businesses as the customer and there are no plans to venture into mortgages or student loans like several of their counterparts in consumer lending.
Talking about the partnership with JPMorgan, Breslow said that the deal was still in the “initial rollout” phase, despite being announced almost a year ago.
Square Beats Revenue Estimates with $439 Million; Lending Business Grows 70%
November 2, 2016Square Inc’s stock jumped 7 percent on Wednesday, thanks to upbeat earnings reported Tuesday.
The Jack Dorsey-led company recorded a loss of $32 million for the third quarter, compared to $52 million in the comparable period last year, and beat analysts’ revenue estimates of $430 million, with a 32 percent jump in revenue totaling $439 million.
Square processed $13.2 billion worth of transactions through its point of sale devices, up 39 percent since last year and the company’s lending business, Square Capital grew 70 percent annually, extending $208 million through 35,000 loans. With this, it has originated over $1 billion in two years.
Square Capital loans are made by Celtic Bank and loan offers are presented using the Total Cost of Capital method, where cost is disclosed as a precise dollar amount so that potential borrowers will know exactly how much they will have to pay. By enforcing a fixed 18 month term, Square differentiates its loan product from a merchant cash advance or a purchase of future sales.
Square CFO Sarah Friar told CNBC that there is still a lot of room for growth in the Square ecosystem with existing merchants, even as the company extends credit to businesses that do not use Square for payments. Friar also said that the company is “executing on all cylinders” to beat estimates for revenue and growth.
Brief: Cross River Bank Raises $28 Million in Equity
November 1, 2016
New Jersey-based Cross River Bank, a marketplace lending partner bank, secured $28 million in equity, led by Boston-based investment firm Battery Ventures, along with Silicon Valley venture capital firms Andreessen Horowitz and Ribbit Capital.
The capital will be used to expand the bank’s technology and product-development teams, invest in compliance infrastructure and plan new business lines to the online lending industry. Battery General Partner Scott Tobin will also join the Cross River board of directors.
Cross River originated over $2.4 billion loans in 2015 and partners with over 15 online lenders including Affirm, Borrowers First, Marlette Funding, Rocket Loans and Upstart.
What Next? SoFi Wants to Sell Life Insurance
October 31, 2016After student loans, mortgages and parent loans, Sofi is making a new leap into life insurance.
The company is set to launch a life-insurance product in partnership with Protective Life Insurance Co, that was acquired by Japanese life insurance company Dai-ichi, last year. The Wall Street Journal reported that SoFi obtained licenses to operate as an insurance broker in states including Arkansas, California, Florida, Massachusetts, New York and South Dakota.
According to KPMG and CB Insights report ‘Pulse of Fintech 2016,’ the first two quarters of 2016 saw $1 billion in VC investment, making insurance “ripe for disruption.”
“Insurers across the world are struggling with a myriad of challenges: low levels of consumer trust, high competition, a low interest rate environment, shrinking profitability and legacy IT issues. Addressing these challenges and creating opportunity for growth can be difficult as any solutions, especially those involving technology, can be complicated, expensive and potentially high risk,” the report said.
Founded in 2011 by Mike Cagney and his fellow classmates at Stanford School of Business, SoFi started refinancing student loans with a pilot loan program of $2 million. Since then, the company has branched out into mortgages, personal loans, parent loans and wealth management services.
More Loans, More Fraud? Lenders Are the Victims
October 30, 2016
Funders and lenders might want to review a TransUnion study that revealed borrowers who take out a second loan within 15 days are four times more likely to be later identified as fraudsters. Taking out a third loan in that time period raises the likelihood to ten times.
Telis Demos of the WSJ reported on the subject in a brief titled, Borrower or Fraudster? Online Lenders Scramble to Tell the Difference, but one statistic really stands out. “On average, 4.5% of borrowers take out more than one personal loan on the same day,” according to TransUnion. “While only some forms of loan stacking are fraudulent, the practice can be costly when inauthentic borrowers apply for multiple loans from multiple lenders within a short timeframe.”
TransUnion SVP Pat Phelan wrote that loan stacking can be a lucrative crime. “In 2015, our study of lenders in the FinTech industry reported that stacked loans represented $39 [million] of $497 million in charge-offs. Depending on how fast each lender does their due diligence, it’s possible they won’t know about other loans and applications until it’s too late.”
The analyses are notable in that they attribute stacking behavior to mischievous borrowers. It’s the lenders that are being victimized.
“It’s likely the same applicants with malicious intent who apply for multiple loans are also applying for multiple credit cards or a number of short-term or personal loans at other financial institutions as well,” Phelan wrote.
It’s Not About Replacing Banks, Square CEO Says
October 30, 2016
It’s not about replacing banks, it’s about making financial services more accessible, said Square CEO Jack Dorsey in regards to what his company and others in the fintech space are doing. During his fireside chat-style address at Money2020, he bemoaned chipped card transactions for being so slow while defending their decision to go public when they did.
“It took us a long time to get [transaction times] down to under five seconds,” Dorsey said. Their goal is to get it down to 3 seconds, which is 7 seconds faster than today’s industry average. The payments CEO who is also the CEO of twitter, appeared to empathize with consumers on long wait times with chipped cards. People aren’t happy,” he said. “It’s really, really, really slow.” While more security is good, he argued that it has to be complemented by a frictionless experience for consumers.
Square Capital, their lending division, was hardly mentioned during his time on stage, which seemed more a consequence of his time allotment than its relative importance. The company funded $189 million to their small business customers in the second quarter. “Our goal is to make sure we’re helping our sellers grow,” Dorsey said. “As they grow, we grow.”
When asked if the timing of their IPO last November was the right choice, Dorsey said that going public should be viewed as an enabler, not the goal. “It’s an investment vehicle,” he argued while standing by their decision. Notably, compared to OnDeck and Lending Club, Square is the only one of the bunch to be currently trading above its IPO price. The stock recently closed at $11.15, up 24% from their $9 IPO on November 19, 2015.
