Articles by deBanked Staff

Lendkey Hires Ex-Treasury Chief to Head Analytics

Lending platform LendKey hired Salil Mehta as senior vice president for credit risk and analytics.

Mehta was the director of the policy, research and analysis department at the Pension Benefit Guaranty Corp. and served as an adjunct professor of statistics at Georgetown University. Prior to that, he headed analytics for the Department of Treasury after the 2008 financial crash and was responsible for econometric, reporting and regulatory advice at the IMF, G-20 and the G-8 summits and has also held private sector positions at HSBC and Citigroup.

At Lendkey, which provides credit unions a platform to set up online lending programs, Mehta will oversee data and analytics—providing insight on credit risk and loan performance for clients and partners.

“We are in an age where banks and credit unions are searching for new capabilities to connect with their customers,” Mehta said. “…I’m inspired and excited to be spearheading that endeavor.”

Is OnDeck Back On Deck? – Industry Veterans Weigh In

After an unpleasant seesaw ride, Ondeck’s stock bounced back to its pre-earnings levels hovering around $8. The lender’s stock crashed 20 percent following its financial earnings on February 22nd due to a soft forward guidance.

The online lender funded a record $557 million in loans in Q4 2015 and generated $68 million in revenue but it wasn’t enough to make up for the $4.6 million in loss. As deBanked commented earlier, the markets can be unforgiving and irrational in its speculation of a downturn. And while OnDeck prides itself for being a company built for downturns because of its short-term repayment cycle, its stock has slumped over 65 percent since its December 2014 debut.

deBanked spoke to experts to ask how reflective this was of the industry and if this portends a larger economic gloom. Here’s what they had to say:

Downturn Survival? Not So Sure

David Obstfeld and Eric Cavalli of merchant cash advance provider S.O.S Capital, think that the market reaction to OnDeck is too strong, even unwarranted. “This is a fairly new industry and many don’t understand it yet,” said Cavalli. “Everybody is expecting an economic downturn and since this is an unproven business, one cannot really comment on whether MCA and the small business lending industry will actually survive.”

While OnDeck’s big data-led algorithmic lending has brought about a major shift in the industry, Obstfeld and Cavalli suspected that it might be why the company lost touch with the ISO base they relied on when it started.

OnDeck, Not On Deck

Heather Francis of Elevate Funding does not consider OnDeck a part of the alternative finance industry given its business model and its fintech brand identity. “OnDeck has a brand issue, they want to be a software company on one hand and an alternative bank on the other,” Francis said. “The marketplace does not know what to do with them and no one sees what OnDeck sees in the mirror.”

Francis also commented that the hype around algorithmic lending is driven less by success and more for investor appeal in fintech. “OnDeck and Lending Club have a lot of capital behind them but there will be a lot of segregation between these companies and the traditional alternative finance companies. OnDeck cannot handle any kind of downturn.”

Just Process, Not Alarm

Corey Cicero at Platinum Rapid Funding considered the market reaction to be harsh and said that this is a normal trajectory for any company. “They are a market leader as far as brand names go. They have a lot to validate their leadership and they are on everybody’s bank statement who has a merchant cash advance,” Cicero said. “I don’t think the stock will be affected further. Congress is figuring out what to do with the industry, everyone else is figuring it out. This is a process.”

Industry Trends

Obstfeld at S.O.S Capital expects a major shakeout in the lending industry. “The market is saturated and in the next six months, the reputable companies will slash rates and when rates cannot be lowered further, companies will get creative with products and pricing.”

And Francis thinks that shakeout could come in the form of consolidation. “The market will shrink and people will spend more to get more origination and the most eye-catching product appealing to millennial entrepreneurs will take off.”

Meanwhile, Cicero at Platinum Rapid Funding said he thinks that there will be a purge of people writing bad loans. “This industry has a low barrier to entry leading to too much competition. People who write bad loans will be weeded out and the industry will correct itself.”

Big Banks Will Buy Small Lenders, Says Deloitte

The marketplace lending industry is likely to see more consolidation. It will be driven by normal credit changes, interest rate changes, and technological improvements such as artificial intelligence, the blockchain and machine learning.

In a study, Deloitte reported that the financial industry is ready for a shakeout and over the next five years, blockchain technology, collaborative ecosystems and cryptocurrencies will become ubiquitous.

For marketplace lending specifically, Deloitte predicts that big banks will start to acquire these lenders or partner with them.

“First, a few marketplace lenders with scale will survive, acquiring smaller rivals and securing joint ventures with big banks and partnerships with small banks; second, big banks will acquire marketplace lenders and other technology/data ecosystem players, replacing or strengthening many aspects of their banking operations; and third, some MPLs will choose to provide white-label services to banks,” said Deloitte in the report.

It also predicts machines to take over most processes of the security trade cycle. But however it added that the role of “human insight will become even more important in serving clients.”