Online Lending 2.0

The Current State and Future of Online Lending

By Renaud Laplanche

The Last 10 Years: A Slow March Into the Mainstream

“Websites are allowing person-to-person loans, cutting out the middleman.”

Now Nearing Completion

“I see the growth of online lending and marketplace lenders as the natural evolution of banking itself.” Noreika said.

Why Online Lending Works

Online Lending Platforms Operate at Lower Costs

Online Lending Generates 400bps in Operating Costs Reduction vs. Traditional Lenders

More Complete Data Set Enhances Underwriting

Bank account data

Credit Score

Credit History

Debt to Income Ratio

Traditional Lenders

Credit Score

Credit History

Online footprint

Bank account data

Debt to Income Ratio

Utility Payments

Online Lending

Credit Score

Credit History

Online footprint

Bank account data

Debt to Income Ratio

Utility Payments

Location Data

Free Cash Flow

Delivering Attractive Investor Returns

Source: Wall Street Journal. Data as of 10/6/2017.

Current Fixed Income Yield Comparison

Upgrade S&P US IG Barclays US Govt/Credit US 10-year UK 10-year gov bond

1%2%

2%2%2%3%3%

5%

8%

And Attractive Yield/Maturity Through Securitization

Mostly Uncorrelated to Other Asset Classes

Source: Garret/Galland Research

87% CAGR

Fast Growing Appetite from Borrowers & Investors

Prediction #1

The growth of online lending will accelerate in the next 15 months

The Next 15 Months

Initial Opportunity is Expanding: CC Balance Rising

US Consumer Credit Card Balance Outstanding

820

865

910

955

1,000

2012 2013 2014 2015 2016 2017

845857

891

910

940

995

But Mortgage Debt Is Declining

Debt Service to Income Ratio: Mortgage vs. Other Consumer Debt

3.00

3.75

4.50

5.25

6.00

2012 2013 2014 2015 2016 2017

Mortgage Consumer

Driving Overall Debt Service Ratio to All-Time Low

Enabling Sustained Economic Growth

The current economic expansion is 99-month old. The expansion cycle before last lasted from March 1991 to March 2001, a full 120 months.

The Emergence of Online Lending 2.0

Modern Architecture / Microservices

Cloud Computing Big Data Blockchain Protocol

Technolo

gy

Lower Operating Costs & Faster Dev Cycle

Better Underwriting Models

Stronger Compliance, Transparency & Data

IntegrityBenefi

t

Greater Affordability & Convenience

Greater Predictability & Liquidity

User Im

pact

Borrowers Investors

Prediction #2

An organized secondary market for online loans will emerge in the next 15 months

Product Innovation

The “Unbundling” of Banking: 1998 through 2015

Banks

Lending DepositsPayments Asset Management

Personal Finance

Lending Club Prosper OnDeck Kabbage

PayPal Stripe Square

Marqeta

Wealthfront Betterment

Wealthsimple WiseBanyan

Credit Karma Mint

Acorn Digit

The Great “Re-bundling”: 2015 - 2020

Lending PaymentsAsset

ManagementPersonal FinanceDeposits

Credit Monitoring & Education Empower Consumers

Prediction #3

Continued re-bundling will give birth to at least one

major consumer product innovation in next 15 months

Legal DisclaimerSome of the statements in this presentation are "forward-looking statements." The words "anticipate," "believe,“ "estimate," "expect," "intend," "may," “outlook,” "plan," "predict," "project," "will," "would" and similar expressions may identify forward-looking statements, although not all forward-looking statements contain these identifying words. Upgrade may not actually achieve the plans, intentions or expectations disclosed in forward-looking statements, and you should not place undue reliance on forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in forward-looking statements. Upgrade does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Information in this presentation is not an offer to sell securities or the solicitation of an offer to buy securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.

Disclaimer

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