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MonJa’s Digital Banking and Lending Monthly Roundup – Why Subscribe?
Digital banking and lending is evolving rapidly. Recent fintech-banking partnerships and innovation in technology with the introduction of AI, ML and blockchain herald a new era in lending. Fintech’s are changing the competitive ecosystem, empowering lenders to process loans faster and smarter. In a world full of noise, understanding how the technologies and developments may impact your financial institution’s credit decisions and credit portfolio is of critical importance. With MonJa’s Digital Banking and Lending Monthly Roundup, it’s easy to stay up to date on what’s happening in the space. Get the latest updates, analysis and commentary on digital banking and lending segment!
06/26/2020 Investor Update by LendingClub (LendingClub)
LendingClub’s latest investor update highlighted the resilience of the Company’s borrowers. Almost 90% of the prime borrowers have not enrolled in any of the hardships plans. The initial members who had enrolled in the Company’s Skip-a-Pay program have already begun to graduate, with 60% of them making payments for the duration. A major section of members is also going for the “interest-only” hardship plans which LendingClub is seeing as a good sign for members and investors. The loans facilitated between Q1 2018 to Q1 2020 are the ones most exposed to the crisis and LendingClub is assessing a 3% internal rate of return for them. The Company is expecting the losses to peak between Q4 of 2020 and Q1 of 2021 as per the hardship plan’s structure and timing. The Company is also targeting a 5% return for loans being issued now.
06/25/2020 Wirecard’s Journey to the Top of European Fintechs (Financial Times)
Wirecard was born in the late stages of the dotcom boom. The company grew to be considered as one of the top fintechs in Europe even after battling allegations of fraud. Markus Braun, a former KPMG consultant, took over as the chief executive and merged Wirecard with a Munich rival, Electronic Business Systems. The Company went public in 2005 and joined the Frankfurt stock market by taking over the listing of a defunct call center group, to avoid the scrutiny of an IPO. In 2008, a German shareholder accused the company of balance sheet irregularities. During 2011-2014, the company raised €500 million for international expansion. In 2015, FT Alphaville found a €250 million hole in its balance sheet but in 2017, it received a clean audit from EY. In 2019, SoftBank injected €900 million and Wirecard appoints KPMG for special audit on pressure from investors. In 2020, KPMG reported that it cannot verify the “lion’s share” of profit from 2016 to 2018. Markus Braun resigned with Mr. Freis becoming the new CEO. Markus Braun got arrested on June 23 on suspicion of false accounting and market manipulation. As of June 25, Wirecard will file for insolvency. The sordid saga proves that corporate governance should be on top of investors’ minds while considering fintech companies.
06/24/2020 Zopa primes credit card as long-awaited full banking license granted (AltFi)
Zopa has been awarded the full UK banking license after 18 months of entering into the mobilization stage. The bank (that was earlier only an alternative lender), is now eligible to launch a 1-5 years’ fixed-term savings account. With this much-awaited headway, Zopa will explore bigger roles in its customers’ finances. Reportedly, the company has been working on an “innovative credit card” that could come out later this year. The card would be an alternative to existing cards that come with poor service and unclear pricing. Zopa’s new line of products will run alongside Zopa’s peer-to-peer offerings (like personal loans and auto loans) and will operate under Zopa Bank alongside Zopa Limited (both forming the Zopa Group). Jaidev Janardana, the CEO, pointed out that given its significant-tech and financial services and products (like savings and credit cards, personal loans, and investments), the Company is a compelling alternative to traditional banking.
06/24/20202 How Cross River Supported Over a Hundred Thousand Small Businesses New York Times
In the middle of coronavirus, a small bank that goes by the name of Cross River is now rubbing shoulders with the megabanks. The bank rolled out loans to more than 106,000 businesses through the PPP. This has made Cross Rivers the fourth biggest contributor to small businesses after Bank of America, JPMorgan Chase, and Wells Fargo. Generally understood as a community bank, Cross River spent the past decade establishing itself as a bank for Fintech startups. The government expected banks to quickly roll out around $660 billion as forgivable loans to small businesses in the form of PPP. Cross River came out as one of the fastest and most proactive banks to work with Fintechs to help businesses unheeded by big banks. Over 30 companies concentrated their borrowers through Cross River, including biggies like Intuit, and Kabbage. As per the SBA data, Cross River’s loans are the lowest ($44,062 on average) of the program’s top 15 lenders while the average loan through the PPP amounts to nearly $111,000. Cross River’s total in lending has gone up to $4.7 billion which is almost double what it had on its books less than three months ago. It collects around $2,200 as a fee from the government on its average loan. A portion of this fee is then shared with the company that brings in the customer. The bank has relied to some extent on its partners to process payrolls. Gusto, for example, processed over 100,000 SMBs. Despite technically being a small bank, Cross River has proven that technology can bridge a decisive gap in the financial market.
After the onset of the pandemic, small businesses were forced to indefinitely close operations. Small business lender, Kabbage also had to furlough some employees and put its traditional lending operations on hold. The Company turned to the government’s Paycheck Protection Program and processed loans to more than 13,000 businesses with an average loan size of about $29,000, mostly to businesses with five or fewer employees. The Company claims that over 90% of its applications for self-employed businesses were automated; eliminating any contact between the borrower and the team at Kabbage. Recently, the Company also launched its streamlined PPP app to apply for federal relief funding for Uber drivers. Being involved in the PPP program, Kabbage could allocate more money (in smaller increments) for its borrowers than ever before. CEO Rob Frohwein describes it as the fintech’s shining moment.
06/15/2020 Amazon and Goldman Sachs: A Small Business Lending Wake-Up Call for Banks (Forbes)
Amazon and Goldman Sachs have announced a joint venture to provide credit up of around $1 million to merchants selling on the Amazon platform. Amazon will benefit by adding a new revenue source with the fees from the Marcus credit lines while Amazon sellers will get the required capital to continue selling on the platform. Goldman Sachs is expected to yield multiple benefits such as high-interest rates (about 21%), late payment fees, and fees for non-usage of the credit line. Goldman is expected to live with a higher loss ratio than most banks would since the cost of acquisition nearly be zero while the cost of loan processing would be low. The approach by these two would also be of major interest to banks and financial observers.
06/12/2020 Andreessen Horowitz on Partner Bank Boom (Andreessen Horowitz)
Over the last decade, there has been a massive boom in partner banks and also in chartered institutions offering banking products for fintech companies ( over fivefold growth). From megabanks to small financial institutions; there are hundreds of such fintech partnerships in all sizes. One apparent reason for this growth is the mutual benefits yielded through such partnerships. Fintechs offer banking products without having to become a bank while the banks get higher returns on low-cost deposits. Not to forget meanwhile, forming these partnerships has become much easier than before with multiple companies providing banking infrastructure services.
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