Marketplace Lending
Lendkey Hires Ex-Treasury Chief to Head Analytics
March 8, 2016
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
March 8, 2016
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.”
Cost of Online Lenders Takes Back Seat to Cost of Government Regulations
March 8, 2016
Study indicates that regulation and taxes are the chief problems, not borrowing costs.
Small businesses are being smothered in the age of marketplace lending… by the government. According to the National Small Business Association’s (NSBA) most recent year-end annual report, regulatory burdens and federal taxes ranked among the most significant challenges to business survival.
The NSBA is a non-partisan small business organization with 65,000 members. In the survey they used to prepare their report, 33% of respondents said regulatory burdens were one of the most significant challenges to their future growth and survival. 24% cited federal taxes. The cost of health insurance benefits beat both of those with 36% of respondents choosing it.
Only 3% of those surveyed reported using an online lender or non-bank lender within the last 12 months. 43% used a bank loan, half of which came from a large bank. In another study, dissatisfied borrowers were slightly more likely to have transparency problems with big banks than online lenders.
Regulators might want to take notice of these statistics when considering future regulations for the commercial side of the marketplace lending industry. That’s because the cost of complying with any such regulations would likely increase the cost to borrowers, not reduce it.
Such was the case with Dodd-Frank and its impact on community banks. Speaking on behalf of the Independent Community Bankers of America last fall during a House Committee hearing, B. Doyle Mitchell Jr., the CEO of Industrial Bank, said that “Dodd Frank has only increased our costs.”
For bank loans in particular, 11% of respondents to the NSBA study that had taken a bank loan within the past 12 months said that the terms have become less favorable to their business. Only 4% reported the terms becoming more favorable.
When it came to the number one issue that small businesses believe that Congress and President Obama should address first, 15% said simplify the tax system, 9% said reduce the tax burden, 9% said rein-in the cost of health care reform, 8% said reduce the regulatory burden on businesses, and only 5% said increase small business access to capital.
Regulators mulling more regulation might want to consider what their constituents are actually saying, and that’s to roll back regulations, not come up with new ones. Online lenders might be expensive, but when asked what’s challenging their growth and survival, they barely even register, if they even register at all.
In a recent story by The Atlanta Journal-Constitution, Holly Wade, a representative of the National Federation of Independent Business, said “Our fear is that they will over-regulate [online lenders] out of existence or to the point that it’s no longer a benefit.”
CFPB Now Accepts Complaints About Marketplace Lenders
March 7, 2016
The Consumer Financial Protection Bureau wants consumers to voice their complaints about marketplace lenders on their website, according to an announcement made earlier today.
“When consumers shop for a loan online we want them to be informed and to understand what they are signing up for,” said CFPB Director Richard Cordray. “All lenders, from online startups to large banks, must follow consumer financial protection laws. By accepting these consumer complaints, we are giving people a greater voice in these markets and a place to turn to when they encounter problems.”
A consumer guide to marketplace lending published by the CFPB, says “If you consider a marketplace lender as one of your options when shopping for a loan, keep in mind that marketplace lending is a young industry and does not have the same history of government supervision and oversight as banks or credit unions. However, marketplace lenders are required to follow the same state and federal laws as other lenders.”
Consumers can submit complaints in the manner they normally would. For instance if the marketplace lender is a student lender, consumers should choose the “student loan” option.
“The CFPB forwards complaints to the marketplace lender and works to get a response – generally within 15 days,” the CFPB says. “Consumers are given a tracking number after submitting a complaint and can check the status of their complaint by logging on to the CFPB website. The CFPB expects companies to close all but the most complicated complaints within 60 days.”
This new complaint feature applies only to consumer products, but according to a recent report, business lenders are next on the list.
Wedding Financier Lends $1 million Each Month
March 5, 2016
Wedding financier, Promise Financial, announced that it crossed $5 million in loan originations and is now lending more than $1 million each month.
There are over 2,000,000 weddings annually with an average cost of $30,000. And Promise’s loans range from $3,000 to $35,000.
The Hoboken, New Jersey-based wedding financier also has tie ups with over 50 wedding venues, planners, and photographers. “As we grow, we’ll continue to focus on technological innovation and excellent customer service to help our customers proactively plan their financial future,” said Bradley Vanderstarren, President of Promise Financial. The company uses big data to underwrite.
Promise is not the first online lender to hone in on the wedding market. Prosper Marketplace, another online lender, targets couples one step earlier by offering engagement ring financing. “While we at Prosper may not be experts at finding the right engagement ring, we can help you apply for a great rate on a jewelry loan to purchase it,” their website says.
Promise also does engagement ring loans and honeymoon loans. Prosper Marketplace goes even further by offering baby and adoption loans.
Big Banks Will Buy Small Lenders, Says Deloitte
March 4, 2016The 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.”
Bizfi Woos Restaurants With Lending Products
March 3, 2016The New York State Restaurant Association signed Bizfi to provide business financing for its 2,000 members.
The New York-based financial platform will be the designated funder of equipment financing, invoice financing, lines of credit, medium term financing, short-term financing, franchise financing and long-term loans from more than 45 partners.
“Restaurants have unique funding needs and owners often do not have time to spare in order to complete the long application process at traditional lenders,” said Stephen Sheinbaum, founder of Bizfi.
Bizfi’s lending partners include all the major lenders in the industry including OnDeck, Funding Circle, Kabbage, IMCA Capital, Bluevine, and SmartBiz and the company has funded over $1.4 to over 27,000 small businesses since 2005.
Prosper Hires New CFO Amid Rate Hikes, Downgrade
March 2, 2016Online lender Prosper Marketplace has hired David Kimball as its chief financial officer.
Kimball joins the San-Francisco based lender from USAA where he was a senior financial officer in charge of capital markets, treasury and accounting.
“Marketplace lending is an industry that I have watched with interest for some time, and I’m thrilled to be returning to the west coast to join Prosper Marketplace,” said David Kimball.
The company recently raised interest rates among what it called a “turbulent market environment” by an average of 1.4 points to 14.9 percent. Separately, Moody’s downgraded three bonds backed by Prosper citing concerns over slow repayment and loss projections.
