Marketplace Lending
Podcast: The Current State of Marketplace Lending and Investing – By Pepper Hamilton LLP
September 26, 2016Law firm Pepper Hamilton LLP has released a podcast discussing the current state of marketplace lending. Of note is the recent CashCall decision as it pertains to “true lender” status. They also touch upon Madden v Midland Funding, a discussion on the recent FDIC guidance and the CFPB complaint portal.
Listen below:
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Denver-based Marketplace Lender P2Bi Secures $10 Million Credit Facility
September 20, 2016Denver-based marketplace lender P2BInvestor (P2Bi) closed a $10 million credit facility with Pittsburgh-based mortgage service company Urban Settlement Solutions.
Founded in 2012, P2Bi provides revolving lines of credit of up to $10 million to businesses. With an average line of $1 million, the company’s customers include businesses in retail, manufacturing and consumer goods packaging. They have originated $300 million since 2014. “Partnering with Urban Lending Solutions proves our ability to fund large facilities to established businesses through our marketplace model,” said Krista Morgan, CEO and cofounder of P2Bi in a statement.
This investment follows a round of $50 million funding the company raised in March this year.
Do Marketplace Lenders Need to Take Balance Sheet Risk?
September 20, 2016At the recent altfi conference in NYC, Rhydian Lewis from RateSetter and Rob Young from OnDeck debated the need for marketplace lenders to take balance sheet risk. (see the video below)
According to Georgia Quinn of Crowdfund Insider, “noteworthy absentees [at this conference] from former years were SoFi, Dealstruck, OurCrowd, Symbid, LendKey, Biz2Credit, OneVest, Realty Mogul, Assetz Capital, CommonBond, Seedrs, Crowdcube, P2BInvestor, and Zopa.” She speculated that it might have something to do with the Lending Club scandal from earlier this year.
Altfi is a UK-based company, competing against many other industry conferences in the US. Competition among conferences probably had more to do with a low turnout than anything else. For a list of upcoming conferences that should have a good turnout, see the upcoming schedule HERE.
Are Fintech Companies a Step Closer to Getting a Nonbank Charter?
September 15, 2016Pushing the agenda further on a limited-purpose charter for non banks, the head of the Office of the Comptroller of the Currency (OCC) Thomas Curry at an industry event on Tuesday said that the bureau is investigating “unique risks” that fintech companies might pose to the banking system and the economy.
Curry said that the true test for the industry will come under a “less favorable credit cycle.”
He revisited the topic of creating a limited-purpose charter for fintech companies akin to credit card banks and other non-deposit taking entities. The agency which was evaluating its authority to extend the same status to fintech companies might be a step closer. Should that happen, “the institutions who receive the charters will be held to the same strict standards of safety, soundness and fairness that other federally chartered institutions must meet,” Curry was quoted as saying in Reuters.
Short of advocating for a charter, the Innovative Lending Platform Association (ILPA) with companies such as Kabbage, OnDeck and CAN Capital have suggested a licensing system that would eliminate the duplicative patchwork of federal and state laws.
Apart from this, fintech companies have also urged regulators to put up a united front by coordinating better among themselves and to take a principle-based approach instead of a rules-based one.
Nonbanks Make Banksy Moves
September 13, 2016It’s starting to feel a little more bank-like in the industry.
Lending Club’s new CFO Thomas Casey, who officially starts September 19th, was the CFO of Washington Mutual Bank from 2002-2008. He’ll be taking over for Carrie Dolan who resigned immediately prior to the company’s Q2 earnings call.
Similarly, Eric Daniels, the former CEO of Lloyds Banking Group, joined Funding Circle’s board last week. He will find good company with fellow board member Bob Steel, who is the former CEO of Wachovia and former vice-chairman of Goldman Sachs.
Both companies are considered leaders in the nonbank lending industry but wear and tear is making these “marketplaces” more like the banks they originally set out to disrupt.
Marketplace Lending Performance In The Eye of The Beholder?
September 12, 2016A user took to the LendAcademy forum to vent about the high charge-off rate that his Lending Club portfolio was experiencing. He also indicated that the seemingly poor performance has affected his investment strategy and feelings about the platform for quite some time.
Other users commented and soon discovered that he was incorrectly calculating his charge-off rate, so the original user went back and redid his math. The end result? His charge-off percentage was actually lower than he originally hoped to achieve, and much lower than the percentages that he thought he was experiencing.
The original user went from angry to happy even though the actual dollars being earned never changed, only the perception of the performance.
Is performance then in the eye of the beholder?
Why The Quiet Summer Was a Good Thing for ‘Marketplace Lending’
September 11, 2016
A lackluster April turned into an explosive May. And then… well it got kind of quiet there for a bit as loan origination volumes for some lenders dropped.
A lot of theories have been challenged, a lot of absolutes shaken. Like given the choice between a short term loan at a high interest rate and a long term loan at a low interest rate, which one would a small business choose? A lot of lenders raised money on the belief that businesses would choose the latter, bolstered by a compelling argument that it is “better” for their well-being. But businesses are not neatly packaged entities with uniform interests, strategies and situations. It’s not uncommon for small businesses to choose both options. Simultaneously. Two loans. To serve different purposes.
And so what then? I believe to some extent the concept of algorithms with thousands of data points, yelp reviews and the rest of it are being challenged by basic scenarios such as what happens to performance models if the customer takes on more debt after the initial loan?
Why do many consumer borrowers that claim to be consolidating their debt end up more in debt? Maybe the lenders themselves expected this but it conflicts with the message that was being told to the outside world for a long time about what made these products so special, that borrowers were consolidating their high interest debt to lower rate loans that was all made possible thanks to the low cost required to operate an online lender fueled by revolutionary new algorithms.
Even the underlying low cost premise to operate is being challenged. Why are low cost lenders often wildly unprofitable if their secret sauce is supposedly the low cost of being a nonbank online lender?
The problem is that some stories sound great on paper but don’t work out exactly as planned in the real world.
Even the concept of peer-to-peer lending and to some degree the marketplace has transformed or been phased out. Marketplace lending as the term is survived by today is typically Wall Street institutions providing capital to nonbank lenders. There is no real marketplace, at least not for the little guy anymore.
All of these discoveries and evolutions are a good thing. Too many experiments being conducted in the market at the same time created chaos. Failures, slowdowns, and adjustments are a positive step toward a sustainable future. How could a lender reasonably rely on its performance models when every day some new company was opening up and pulverizing the market with billions of dollars of marketing and loans based on some untested unprofitable system?
It’s no wonder that like twenty trade groups formed this year alone. Regulators and legislators looking out into the world of fintech probably saw and still on some levels see a tornado of disruptive confusion.
“Are you guys one of those crowdfunding marketplace bitcoin cash advance peer-to-peer lending companies I’ve been reading about? We need to regulate you.”
They need help to sort through it all and fast.
The FDIC, for example, humorously defined marketplace lending as basically every kind of lending there is, from auto loans to merchant cash advance to medical patient financing to real estate lending. The industry became everything and as everything it’s essentially nothing.
And so the quiet summer months, though not totally dead, were much needed. Hopefully everybody has gotten a chance to breathe and can now continue the work they set out to do and truly provide sustainable value to the economic system.
Bring on Fall!
HK Marketplace Lender WeLab Secures $25 Million Credit Facility from ING Bank
September 6, 2016
ING Bank upped its investment in Hong Kong marketplace lender WeLab with a credit facility of $25 million.
This follows a $160 million Series B round in the mobile and online lending company led by ING and Khazanah Nasional Bank. Founded in 2013, WeLab operates Wolaidai, a Chinese mobile lending platform for loans ranging from $50- $500 and WeLend, a P2P lending site in Hong Kong which has processed over $4 billion in loans since inception.
In the near future, the company wants to tap into the bank loan market to raise an additional $50 million and make a foray into the insurance market.
“We believe this credit facility is one of the first completed by a major bank to fund the portfolio growth of a fintech company in Asia and are confident that this will open more doors to institutional funding in the near future,” WeLab founder and CEO Simon Loong told DealStreet Asia.
The firm is backed by investors including Sequoia Capital, Yuri Milner and Guangdong Technology Financial Group. WeLend was launched as a social lending platform targeting debt consolidators and small businesses for loans up to $20,000 for two years. With the Chinese P2P market poised to take over 9 percent of total retail loans by 2018 and high fintech adoption (29 percent digital users) in Hong Kong, will this be the first of many such bets?
