Analysis Featured

Marketplace Lending as a pure technology company

Understanding the pain point of the fintech lenders, Lendkey has metamorphosed itself into a Lending-as-a-Service provider. It has more than 320 credit unions and community lenders as partners, using its platform to disburse loans to thousands of students and professionals.

A real marketplace with an interesting customer acquisition

The relationship is a win-win as the credit unions get to own the customer relationship, but they are able to provide a hassle free online experience to the prospective borrower through the Lendkey platform. In another move, (which underlines the sophistication of the team behind Lendkey) the fintech start-up has also entered into collaborations with financial institutions that will fund the expansion of the credit unions by participating in the loans originated by them through the Lendkey platform.

The start-up will be able to leverage the good reputation of credit unions among customers (credit unions have an approval rating of 70%) and fund the expansion from the deep pockets of financial institutions. The LaaS platform has been able to create an interesting ecosystem of partnerships which results in better rates and services for the borrower. The lowest APR starts at 1.93%, something not possible at a Lending Club or Prosper, though they serve the same credit profile as Lendkey.

Company history

Lendkey was founded in 2007 as Fynanz, a p2p loan platform for student loans. The company rebranded as Lendkey in 2013, when it saw that the originating space was getting crowded by homogenous copycats and marketing cash burn and losses were starting to hurt the industry. It pivoted to the lending-as-a-service model and started partnering with community banks and credit unions to even the tech divide. Vince Passione(CEO) and Michael Stallmeyer (COO) are the co-founders and have raised $19.5 mil in equity funding from the likes of Drapes Fisher Jurvetson, Gotham Ventures and Updata Partners. The start-up presumably should have very strong unit economics as the last equity funding was in 2013 and it raised $8 mil in venture debt from Silicon Valley Bank in 2015.

Business model

Another important issue to consider is Lendkey’s revenue model. It takes a 2.5% origination fee and 1.5% servicing fee. Its revenue is equivalent to a marketplace lender without the accompanying risk. By acting as LaaS platform, the company can focus on marketing and borrower experience rather than deal with the murky business of securitization of loans or the hassles of balance sheet lending. The company is instead aggressively adding to its product portfolio. It started out as a student refinancing specialist but has recently stitched up major partnerships in auto and home improvement financing. The company reached the magical figure of 1 billion dollars in total capital deployment in April 2016 and the management aims to complete the next billion dollars in half the time. The company’s flagship products are student loans and student refinancing options (90% of the billion dollars was from these segments) and both account for 50% each of the 90% student pie. The site’s key target demographic is 22-27 age group, as this segment can also act as a sales funnel for a bouquet of financial services in the future.

$1 billion in committed capital

The company hit the big league when it was able to obtain a commitment of $1 Billion from Midcap Financial; a fund managed by the private equity giant-Apollo Global Management. The fund would initially deploy its capital in buying student refinancing debt from Lendkey.

Customer acquisition

The fintech platform was also able to partner with the largest credit union on earth, Navy Federal. The credit union would use its LaaS platform to offer private student loan options to its members. The New York-headquartered start-up has given birth to a new model wherein the company acts as a facilitator without risking its capital. The partnerships with the 320 credit unions give it a unique opportunity to profit from the credit union’s own members. The cost of acquisition of such members should be extremely low, giving both Lendkey and the credit union a competitive moat against marketplace lenders spending $200 to $500 in CAC for an average $15,000 loan. The company has focussed on targeting borrowers with a higher credit profile. The average FICO for a borrower is 740 and thus, it does not foresee any major default issues even if the country were to go through a 2008-09 deep economic recession.

Vincent Passione

Vincent Passione has 30 years of experience in fintech and was the COO of DealerTrack, one of the largest credit portals connecting auto dealerships with banks and credit unions. His experience has led him to create a model which is extremely scalable yet inherently safe for the investors. He likes to call Lendkey more of a technology company versus a finance company. Online finance started out as a part of alternative finance but having an online onboarding process for a borrower today is not a tech play but an essential for survival. Instead of trying to capture more users (like its overfunded peers) by burning cash on Google and Facebook marketing, it plans to leverage the existing 100 million credit union members in the Unites States. Due to the LaaS platform and its flexibility, credit unions are able to keep the customer relationship, while simultaneously expanding it.  Lendkey has been able to diversify into an extremely profitable niche and looking at the returns of SaaS companies, Lendkey investors are looking at a billion dollar payday.

 

Author : George Popescu and Heena Dhir

George Popescu
George Popescu

About the author

George Popescu

Serial entrepreneur.

George sold and exited his most successful company, Boston Technologies (BT) group, in 2014. BT was a technology, market maker, high-frequency trading and inter-broker broker-dealer in the FX Spot, precious metals and CFDs space company. George was the Founder and CEO and he boot-strapped from $0 to a $20+ million in revenue without any equity investment. BT has been #1 fastest growing company in Boston in 2011 according to the Boston Business Journal and the only company being in top 10 fastest in 2012-13 as it was #5 in 2012. BT has been on the Inc. 500/5000 list of fastest growing companies in the US for 4 years in a row ( #143, #373, #897 and #1270). After the company sale in July 2014 until February 2015 George was Head-of-Strategy for Currency Mountain ( www.currencymountain.com ), a USD 100 million+ holding company focused on retail and medium institutional currencies, precious metals, stocks, fixed income and commodities businesses.

• Over the last 10 years, George founded 10 companies in online lending, craft beer brewery, exotic sports car rental space, hedge funds, peer-reviewed scientific journal ( Journal of Cellular and Molecular medicine…) and more. George advised 30+ early stage start-ups in different fields. George was also a mentor at MIT’s Venture Mentoring Services and Techstar Fintech in NY.

• Previously George obtained 3 Master's Degrees: a Master's of Science from MIT working on 3D printing, a Master’s in Electrical Engineering and Computer Science from Supelec, France and a Master's in Nanosciences from Paris XI University. Previously he worked as a visiting scientist at MIT in Bio-engineering for 2 years. George had 3 undergrad majors: Maths, Physics and Chemistry. His scientific career led to about 10 publications and patents.

• On the business side, Boston Business Journal has named me in the top 40 under 40 in 2012 in recognition of his business achievements.

• George is originally from Romania and grew up in Paris, France.

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