online lending landscape - nycua...online lending landscape alan bahr senior vice president...
TRANSCRIPT
8/14/2017
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Online Lending LandscapeALAN BAHR
SENIOR VICE PRESIDENT
S IMPLYCREDIT, INC.
Agenda
• Peer‐to‐Peer (P2P) Lending Defined
• Performance of Key P2P Platforms
• P2P Growth Strategies
• Signs of Disruption
• Strategies for Credit Unions
• Q&A
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Peer‐to‐Peer (P2P) Lending Defined
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A Short Quiz
• Peer‐to‐peer (P2P) platforms crowdsource funds primarily from individuals who have cash and lend to individuals who need cash
True
False
• Which of the following is NOT a characteristic of P2P platforms?
A. Online Loan Origination
B. Capacity to Portfolio Loans
C. Automated Underwriting
D. Loan Servicing
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FALSE
B
The Term Peer‐to‐Peer is a Misnomer
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80% ‐ 90%80% ‐ 90%
10% ‐ 20%10% ‐ 20%
Sources: PwC, Feb 2016
P2P Shareholders and Investors
• Institutional investors are banks, hedge funds, or other business entities… Approximately 40 different funds have committed to purchase assets from P2P platforms, with at least 12 different funds committing $200 million or more
PwC, Feb 2015
• Board members at the largest P2P platforms include executives at some of the largest banks in the world including Morgan Stanley and Citigroup... WellsFargo, through its venture capital arm, is the largest investor in LendingClub
Forbes, Oct 2014
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• Increasingly referred to as Marketplace Lending
• Transactions are consummated online, leading to lowered transactional costs—400 basis points improved op ex (according to Foundation Capital, Sep 2016)
• Institutional investors influence underwriting requirements
• The P2P platform generally services the loan
• There is usually no common bond between borrowers and investors—P2P platforms intermediate cash flows
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Summary: What is P2P Lending?
Performance of Key P2P Platforms
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Another Short Quiz
• P2P lending is growing, but it’s still a niche business
True
False
• P2P platforms encroach on credit union core businesses
True
False
• P2P platforms are only interested in low credit‐quality tiers
True
False
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FALSE
TRUE
FALSE
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P2P Volume Outpaces Other Lenders
• Four online lenders now originate more personal loans than all 5,900 credit unions combined
• They have a collective history of less than 30 years
• 2025 Origination Forecast
Personal‐‐$350 Billion
Small Business‐‐$206 Billion
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Sources: TransUnionLPT Research, Nov 2015
Top P2P Lenders
• P2P Lenders tend to specialize in a niche business
• However, they cross‐sell borrowers into other loan types
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Source: S&P Market Global Intelligence
$8.7
$2.3 $1.7
$1.1 $0.3 $0.0
$2.4 $1.4
$0.8 $0.2
$8.1
$0.8 $0.7
Lending Club
Prosper
Avant
Best Egg
Upstart
LendingPoint
OnD
eck
Kabbage
Square
Capital
Credibly
SoFi
Earnest
CommonB
ond
Personal SME Student
$ Billions
2016 Originations
P2P Fills the Entire Credit Spectrum
• P2P Lenders originate a high percentage of subprime loans
• Still TransUnion data indicates fintechs outpaced traditional lenders for credit score transactions between 601‐720
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Source: NSRInvest, April 2016
0%
20%
40%
60%
80%
100% Lending Club Prosper
Credit Quality
A B C D E F G
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P2P Growth Strategies
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Debt Consolidation is a gateway
• First P2P offer is debt consolidation
• Take advantage of low cardholder loyalty
• Cross‐sell relationships
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Sources: LendingClub, April 2017Temkin Group, April 2017
Debt Consolidation
Home
Small Business
Auto
Education
Other
LendingClub Originations
30 32
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Credit Card Issuers Banks Credit Unions
Net Promoter Scores
Online Strategy is More than Automation
Target ConsumersTarget
ConsumersDrive TrafficDrive Traffic
Offer Convenience
Offer Convenience
Welcome BackWelcome Back
Sophisticated pre‐screen analytics are used to
make offers to the right people at the right time
Site traffic is generated through email, direct mail, social media and other campaign types
Online tools and processes focus on convenience and
simplicity—not price
Compelling content, including online reports
and statements, encourage repeat visits
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The Need to Focus on Millennials
2005:Final Birth Year
2014: $2 Trillion in Liquid Assets
2016: Largest Demo‐graphic
2020: $7 Trillion in Liquid Assets
2025: 46% of Nation’s Assets
• Millennials are now the nation’s largest demographic
• They will soon control nearly half of all financial assets
Source: First Data White Paper, 2015
The Importance of Convenience
• According to Viacom Media (2014):
o 71% of Millennials would rather have root canal than listen to their bank
o 33% believe they won’t need a bank in five years
Sources: consultancy.uk, June 2017FICO, 2014
Ability to Cross‐Sell
• Retention of customers who have used a P2P platform before is high, with 75% saying they would approach one again when seeking a loan
Verdict Financial, Jan 2016
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Signs of Disruption
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Disruption is Across All Financial Products
Are Credit Unions Concerned?
• 60% of credit union executives believe online disruption is negligible or non‐existent
Source: SimplyCredit Survey, Apr 2017
17%
43%
19%
11%
No Impact Negligible Impact Significant Impact Don't Know
Believed Effect of Disruption
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Strategy: Analytics, Content, Ease‐of‐Use
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I received a great loan offer. Can you match it?
Can’t I apply and get what I need online?
I get all the financial information I need from a website.
Response to Disruption
Source: SimplyCredit Survey, Apr 2017
44%
26%
84%
18%
Don't want to visit branch
Gets financial info from web
Receives loan offers via email
None of These
Member Comments
65% 54%
17% 23%
App‐to‐Funding Online Tool
Content to Drive Online Traffic
Predictive Analytics
None of These
Credit Union Capabilities
The Threat is Expanding
Type of Lending
Business
Student
SecuredConsumer
UnsecuredConsumer
Investor Warehouse Deposits Lending Partners
Liquidity Source
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SimplyCreditSimplyCredit
Goldman Sachs
Goldman Sachs
SoFiSoFi
Common Bond
Common Bond
ProsperProsper
OnDeckOnDeck
KabbageKabbage
LendKeyLendKey
Lending‐ClubLending‐Club
LendingHomeLendingHome
AvantAvant
LendStreetLendStreetSunTrust / LightStreamSunTrust / LightStream
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Strategies for Credit Unions
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Bank / Fintech Partnering Strategies
Strategy Rationale Examples StyleWhich Partner is:
Channel Underwriter Lender
Grow Assets / Revenue Source
• LendingClub—Union Bank• LendingClub—BancAlliance• LendingClub—Credigy• LendingClub—Tennessee State Bank
FintechFintech(Online)
Fintech / Bank
Bank as Investor
Grow Customers • Prosper—SunTrust Co‐BrandedFintech (Online)
Fintech / Bank
Bank as Lender
Provide Borrowers Options
• Fundation‐–Regions Bank (SME)• Fundation—Citizens Bank (SME)• Prosper—Radius Bank
Co‐Branded Bank Fintech Fintech
Upgrade Automation / Tools
• OnDeck—JP Morgan (SME)• Avant—Regions Bank
White Label Bank Fintech Bank
Credit Union Strategies
Alternatives Pros Cons
Collaborate with Typical P2P Platform
Low cost of entry
Free Tools
Free Analytics
Way to grow assets (not loans)
No need for back office support
Member relationship?
Loan or investment growth?
Lack of control
Underwriting
Member Experience
Compete
Establish member relationship
Loan is originated
Retain control
Underwriting
Member Experience
High cost of entry
Platform development
Marketing support
Scale vulnerability
Management distraction
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Watch for credit union‐friendly options: No dollar‐cost entry Control over underwriting Loan / membership growth Sources: PwC, Feb 2016
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Closing Suggestions
• Be accessible in real‐time all the time
• Communicate through email and text reminders, alerts and promotions
• Have an app for everything, easy‐to‐use tools that work on all devices
• Be a partner—help navigate current and future members toward solutions
• Demonstrate innovation: Create experiences that are interactive and empower
Source: First Data, Mar 2017
Q&A
• See us online at: http://community.mysimplycredit.com
• Email me at: [email protected]
• Call me at:
Alan BahrSVP, Business DevelopmentPh: 415.571.4233Email: [email protected]
Thank You
Alan Bahr, SVP [email protected]
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