MonJa’s Digital Banking and Lending Monthly Roundup | October

MonJa’s Digital Banking and Lending Monthly Roundup | October

In Industry News, Small Business Loan Underwriting by Yulia GnatyukLeave a Comment

MonJa’s Digital Banking and Lending Monthly Roundup – Why Subscribe?
MonJa’s Digital Banking and Lending Monthly Roundup | October

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!


Transactions in cryptocurrency are a reality and major financial institutions like Visa, Square and even corporates like Starbucks and Microsoft enable payments directly/indirectly via Bitcoin. Banks have caught on to the fact that their clients are actively dealing in crypto-assets. This has required banks like Barclays to upgrade their governance framework so that they can capture any suspicious activity. By demanding transparency and enforcing KYC norms, banks are self-regulating their clients. With the advent of alt-lending against crypto assets, it is a matter of time when banks not only facilitate payments but consider cryptocurrencies as an appropriate collateral for loans.

Capital One and Discover are among the largest credit card issuers in the US and a large chunk of their customers are in the sub-prime category. Dialing down expansion by reducing loan origination and canceling card limits might seem to be counter-intuitive when the US unemployment rate is at record lows. But is a prudent measure when the economic recovery eventually ends. The question is whether digital lenders will follow suit or keep their focus only on topline growth.

In a deeply insightful article, the authors examine the evolution of regulatory sandboxes and why US seems to have lagged behind other regulators in creating a safe space for fintech lenders to experiment with their services. It also delves into how credit scoring and blockchain might hold the answer to this conundrum.

Roger Hochschild, Discover’s president and CEO, is prioritizing student loans over personal loans as it grapples with a high personal loan charge-off rate. It is expecting the headline rate to increase to 5% in 2019 as compared to the current 4.09% for the Q3 2018 quarter.  This puts CommonBond and SoFi over a stronger position as compared to lenders like Lending Club and Prosper.

The Conference of State Bank Supervisors (CSBS) has sued the Office of the Comptroller of the Currency (OCC) over awarding national bank charters to fintech lenders. Varo Money recently got the approval on a provisional basis and traditional banks seem to be nervous that their last protected turf will also be history.

In a move reminiscent of the JPMorgan and OnDeck deal, HSBC will be using Avant’s Amount Technology for launching an online personal lending platform in the US.  Avant is a fintech unicorn and has originated north of $5 billion in loans through its proprietary technology. The platform will be tailored to fit the bank’s risk models and specific guidelines.

America’s 5th largest bank is now shifting gears to target small business lending. U.S. Bank’s online platform will now be able to lend up to $250,000. The application will be 100% digital and should be an hour-long process. This highlights that traditional banks have woken up to both the opportunity in digital lending and the threat from nimble alt-lending startups.

The relationship between the investee “The Princeton Alternative Investment Fund (PAIF)” and the investor “Rangers Direct Lending (RDL)” encountered a new low when the latter rejected PAIF’s move to appoint Judge Steckroth as an independent restructuring officer. PAIF has entered bankruptcy proceedings and RDL is also in the process of closing the fund due to a sharp drop in value.

The article analyzes the TransUnion study ”Fact versus Fiction: FinTech Lenders.” It reports that fintech lenders now account for almost 32% of the outstanding personal loan balances. When compared to their 4% share in 2012, this translates into a massive 800% jump for the nascent industry. Even more surprising is the assertion that fintechs had a better risk-return ratio as compared to traditional lenders.

The founder of Lendio, Brock Blake shares his journey of running a $10 million in annual revenue company, shutting it down to pivot to Lendio and originating $1 billion in loans in year to date. The company has funded over 51,000 businesses and average loan size is approximately $37,000. The growth trajectory has been awe inspiring with $1 million in loans in 2014, $500 million in 2017 and having crossed a billion by October for 2018.

OnDeck, NYSE-listed online lender to small businesses, revealed the launch of its subsidiary ODX. The focus of ODX will be to help small banks go digital in their lending. The banking-as-a-service product has now become mainstream with players like Kabbage, Avant and OakNorth also jumping on the bandwagon. The issue at hand is why fintech lenders are collaborating with their traditional competitors. Monetization seems to be the obvious answer. A SaaS offering not only creates a new revenue stream but also has no attendant credit risks involved.

FolktoFolk is now the third largest peer-to-peer lender in the small business segment in the UK. It has originated almost GBP 70 million in loans in 2018 and it’s lifetime originations have crossed GBP 250 million. Its “Local Lending Movement” helps connect local lenders with local businesses and leverages a branch-based model for growth.

American Express is partnering Ezbob, a UK based alt-lending platform for a deeper push into small business lending. It will refer its clients to the platform, where they can raise up to GBP 300,000 in funding. To sweeten the pot, clients taking loans will also get 40,000 American Express Membership Rewards points. This is on back of an earlier announcement of Amex partnering Early Pay, a B2B invoice financing platform.

In a strong vote of confidence, Funding Circle’s biggest backers Index Ventures and Accel did not sell a single share in the fintech lender’s IPO. They are now locked in for a year before they can look to offload their shares in the market. This is on top of the company’s founder and CEO, Samir Desai deciding to liquidate almost 25% of his holdings in the IPO. The IPO has had a rough start with losses touching almost a quarter of the company’s IPO value in it’s first full trading week.

According to analysis by AltFi, p2p lending has outperformed 90% of UK bond and property funds. This is massive news for the p2p lending industry, as it helps them educate investors sitting on the sidelines of the p2p lending revolution. The investors seem to be voting with their wallets, p2p origination in the UK has tripled from almost GBP 1.1 billion in H1 2015 to GBP 3 billion on H1 2018. AltFi estimated p2p investments gave a return of 18.92% after all fees for the period 30th June 2015 to 30th June 2018.

Fellow Finance is a Finnish peer-to-peer lending platform and has raised approximately Euro 10 million in its IPO to fund aggressive growth. It will be valued at approximately Euro 55 million and has a topline of Euro 12 million and operating profit of over Euro 3 million. Its shares were oversubscribed 2.2 times. The IPO is in a long list of European fintechs going for a public raise. Funding Circle and Raize were the others who recently tapped the public for growth capital.

Intuit is owner of the popular accounting software Quickbooks. It has also developed products like Turbo and Mint to help clients evaluate their financial health. It is now partnering with Lending Club to allow Turbo users to pre-fill their application for speeding up the lending process. Such associations are ideal for all as Lending Club gets a new distribution channel, Intuit develops an additional revenue stream and the user is saved dozens of man-hours in filling up a complicated loan application.

The article explores the resilience of the alt-lending industry as the US economy enters a rate tightening cycle led by the Fed. With the US economy at record highs, the inevitable slowdown is right around the corner. Even the Bank of International Settlements, the central bank to central banks, warned in its report that fintech loans have not been properly stress tested and their impact on the overall economy is still a big unknown.

The article focuses on how digitization for financial services is a must. A Gartner report predicts that only 20% of traditional financial firms will be able to survive by 2030. A small business owner needs an average of 33 hours to apply for a loan. This is unacceptable in today’s digital era. But an American Banker report highlights that banks understand the new transformation and are now overwhelmingly willing (almost 75%) to invest and partner to undertake this digital transformation.

The sordid saga of Lending Club’s former founder and CEO Renaud Laplanche’s corporate “misgovernance” has come to an end with a $200,000 fine. He was let off with not having to admit or deny any wrongdoing. He is banned from the securities industry for 3 years but that will have no impact on his current standing as CEO and founder of Upstart, a lending startup. Lending Club was forced to pay out a $4 million fine.

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