Latest updates on p2p and marketplace lending - PowerPoint Presentation

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Latest updates on p2p and marketplace lending

George A. PopescuSlide2

George Popescu

Entrepreneur

Built 11+ companies

8 of which exited successfully or closed with a profit

Founder, CEO, hands on, involved with all aspectsBuilt #1 fastest growing company in Boston Inc 500/5000 4 years in a row

Co-founder and ex-CEOPersonal loan originatorMarketplace Lender

Partner

Ventures Debt fund

Editor in Chief and Founder

News, Analysis and Data for p2p and marketplace lender

10000 visitors per month

4500 daily newsletter readersSlide3

Slight increase in default rate

We see an increase in delinquency at lower credit scores

 – particularly in subprime loans where we have seen increased non-bank origination in 2010. Although the delinquency rate for prime borrowers has declined, we observe an increase in the 90+ delinquency rate for the overall credit card industry from 1.47% to 1.58%.

Auto LoansOutside of credit cards, we see an increase in delinquencies in auto-loans (1.24% in Q4 2015 vs. 1.16% prior year). We have seen a boom in sub-prime auto origination since 2010, and subprime auto delinquencies are at a 6-year high.

Student LoansThe vast majority of P2P Student Lenders have a high median FICO, and in some cases, have exhibited zero delinquencies or defaults. Student loan delinquencies stand at 11.5%.Taking a step back, credit product’s delinquency levels are substantially lower than peak-2010 levels, and are near multi-decade lows, as compared to credit card charge-offs.Slide4

Peer-to-peer lending: What will happen in a downturn?

Personal vs corporate

: corporates are over leveraged due to cheap capital since 2008. Individuals are less leveraged since 2008.“There is a generalization going on, and what will emerge in a downturn is that the loans originated by different platforms may behave differently. People are going to become more discriminatory because of that.”

“what sectors will banks pull back from? They’re not going to universally pull back, so where will they pick and why? Are they avoiding companies that they think are more vulnerable in a downturn? Probably. And if they’re reducing exposure to those that’ll suffer most, are their risk models correct?”

You “need to understand why the company is borrowing, how they are going to repay and what happens if other lending or overdrafts get withdrawn from existing providers”Slide5

Capital Markets are shaky

The yield on the $278 million offering by Citigroup as high as 12.5% for a portion of loans, according to

PeerIQ. That was more than 5 percentage points higher than the top 7.3% yield for a prior offering of Prosper loans by Citigroup late last year. It was also above the highest yield for a similar securitization Citigroup handled of Marlette Funding LLC loans earlier this month, at 11%.

54% of respondents are predicting a drop in credit quality in 2016, compared with 29% the previous year. Half (50%) of respondents also anticipate that issuers of ABS securities will tighten their underwriting standards in 2016, up from 11% in 2015.Despite overall economic uncertainty, nearly 80% of respondents expect buy-side interest will increase or remain the same.

“We are seeing cautious optimism in the marketplace; expectations of growth are balanced with understandable concern about asset quality and a potential tightening of credit standards,” said David Kucera, managing director, financial institutions group at Capital One BankSlide6

Difficulty to raise capital

Is the business generating a resilient book of business?

Can the business recruit the right investors who like the economics of the loan production?Is the business able and willing to switch its cost structure when faced with slowing or shrinking growth in originations?Is the company capitalized to weather a prolonged storm?

What Happens When The Cash Runs Out?Will anyone notice?How much money is being burned?

“Cash and equity are precious in this environment so acquisitions don’t make sense.  Even at a zero valuation, he said he’d be reluctant to take on the challenges of integrating a new team/tech into the mix right now.”Bank: willing to consider buying a company if the acquisition were immediately accretive.“What about proprietary tech?  What about an embedded user base?  What about IP?”  Value them at zero.Slide7

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”― Warren Buffett

Partnering to form 

LendTech Capital Partners (“

LendTech”), a new investment advisor focused on private equity strategies within the marketplace lending industry.Liberum

The Ranger Specialty Funds Velocity Ventures Group 500 Startups raising a $25mil seed-stage fund focused on fintechSlide8

Regulatory thoughts

The Office of the Comptroller of the Currency (OCC) published its perspective on responsible innovation in the federal banking system and solicited feedback.

SEC Chair Mary Jo White, While the SEC remains “concerned” as the information provided to investors, they continue to work with their governmental brethren to develop a “broader understanding” of the marketplace lending industry.

New guidance is being developed by the Federal Deposit Insurance Corporation (FDIC) to address risks associated with banks making loans through third parties could significantly impact marketplace lending, private label credit card, and dealer-assisted financing programs.The FDIC’s development of the guidance comes in response to the highly critical “Report of Inquiry into the FDIC’s Supervisory Approach to Refund Anticipation Loans and the Involvement of FDIC Leadership and Personnel” issued last month by the FDIC’s Office of Inspector General (OIG).Slide9

Lending Club changes

In response to 

Madden, Lending Club announced that it would restructure its relationship with WebBank by increasing the fees paid to the bank. In doing so,

WebBank has agreed to maintain an ongoing economic interest in all loans made after they are sold and will have a continuing contractual relationship with the borrower.

Mr. Laplanche is that 45% of the loans went through the institutional lenders last year, according to Financial Times.Renaud Laplanche, chief executive of Lending Club, says he wants to cap at its present level the firm’s dependence on institutional money (although he is only talking about a subset — hedge fund, bank and insurance company cash — that accounted for about 45 per cent of its funding last year).Slide10

People doing well : New entrants and Real estate crowdfunding

Squared Enters Lending Space partnering with Celtic Bank. 

A fixed fee of between 10 percent and 16 percent. Borrowers pay back their loans through a 9 percent to 13 percent cut of their transactions, and must do so within 18 months. Square reports extending $400 million of cash advances to 70,000 merchants as of year-end 2015 and has seen revenues from its cash advance products increase precipitously. Square transacted $10.2 billion in Q4 of 2015.

Real Shares, Path Of Land , Patch of Land, Home Union breaking $100m lent milestones, raising funds and investors.Slide11

2 theoretical thoughts

Understanding inflation and rate impact using money velocity

Gini Coefficients, is to evaluate the predictive power of credit scoring models.