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Monday October 31st, Daily News Digest

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United States

United Kingdom


  • Korea to become a fintech hub. GP ” I strongly believe this will be the case, as I’ve seen Korean volumes in other financial sectors demonstrate Korea is a serious financial hub.”



United States

Weekly PeerIQ newsletter, (Email), Rated: AAA

US GDP growth clocked in at an annual growth rate of 2.9% and the probability of a December rate hike is increased to over 70%. A PIMCO analysis this week illustrates that rising inflation expectations and negative real rates continue to pressure bank profitability, consistent with PeerIQ’s bank ROE analysis.

LendingClub appears to be pivoting to growth. LendingClub CEO, Scott Sanborn, unveiled an auto refinance product at Money 2020. In a shift from prior business practice, the loans will initially be funded by LendingClub’s balance sheet and servicing will be outsourced–a nice combination should LendingClub choose to tap the auto ABS markets.

In an expected move, noted in our 3Q2016 Securitization TrackerProsper increased rates on riskier loans (concentrated in D, E, and HR grades) and lowered rates on high-quality loans following a similar action from LendingClub on October 14th when LendingClub raised rates by a weighted average of 23 bps basis.
On the securitization front, the latest deal from Earnest Student Loan Program (EARN 2016-D), was led by Barclays and Goldman Sachs and priced successfully. October marked the first month of over $1 billion in new issuance – an industry milestone that PeerIQ anticipated at a LendIt Europe “State of the Industry USA” panel.

2017 Forecast by PeerIQ, (Email), Rated: AAA

We expect the U.S. MPL market to grow in 2017. Specifically, we expect 47% YoY growth ($26.7 billion in life-to-date new issuance volumes since 2013) in the new issuance market under our base case.
Our forecast methodology is as follows:
  1. We start with consumer demand. We observe re-leveraging of consumer credit post-2011 and conclude that consumer demand for loans will continue to expand in 2017.
  2. We predict continued demand for short duration MPL ABS bonds given i) elevated interest rate risk and potential steeper yield curve for fixed-income investors, and ii) the favorable relative value of MPL ABS to other credit spread products.
  3. We build a bottoms-up framework that examines the pace and size of deal activity across repeat issuers to forecast 2017 ABS volumes under a base, bear, and bull case.
  4. Finally, we observe that ~55% of loans were funded via the ABS market in 1H 2016. We use an assumption of 50% funding via ABS to back out total MPL originations.
In our base case, we do not foresee a severe negative shock to the U.S. economy, and consumer debt growth stays on the same trajectory as next year. As the U.S. household market moves out of the balance sheet deleveraging phase, we expect an expansion in the total addressable consumer credit market.
Fixed-income Investors Continue to Favor MPL ABS in 2017
Asset managers are seeking short duration assets that have lower interest rate sensitivity in a rising rate environment. Within the ABS sector, we observe that marketplace ABS papers present strong relative-value. For instance, MPL student refi ABS papers retains ~50 bps of spread pick-up as compared to traditional private student loans ABS.
Fixed-income investors, especially traditional securitized product investors, will continue to actively bid the MPL ABS bonds in 2017 amidst rising inflation expectations and a global reach for yield. A healthy yield appetite from bond investors will support stable demand for new issuance.
Repeat Issuers Continue to Power the New Issuance Market in 2017
We believe that the emergence of repeat issuers and broader rating agency coverage allow the MPL ABS category to be incorporated into mainstream ABS sector.Indeed, as warehouse financing roll risk increases non-bank lenders are increasingly funding via securitization to raise permanent, low-cost, non-recourse capital.

MPL ABS Issuance to Grow Approximately 47% YoY for 2017

Looking ahead to 2017, we believe that the MPL ABS new issuance market will continue to be dominated by repeat issuers, such as SoFi, Marlette, Avant, Earnest, CommonBond, and others.

Given the repeat issuers make up about 80% of the MPL ABS issuance, we put our base case new issuance outlook at $11.2 billion, or a $26.7 billion total ABS issuance, backed by $30 billion of loans, by YE 2017.  We ignore growth in the real estate MPL market for this analysis (although we do observe ABS activity with LendingHome and expect others to follow).

Ron Suber: “Victory Goes to the Ones Who Change and Adjust”, (Crowdfund Insider), Rated: A

In a recent article on Lending Times, Suber highlighted 5 lessons learned during 2015:

  • We can’t do it alone
  • You better have awesome partners
  • Focus on what’s critical on your path to success
  • A reputation takes years to build, but minutes to tarnish
  • Victory goes to the ones that change and adjust

But the fact of the matter is that online lending is based on a simple premise of providing a better service, at a lower cost, while delivering higher returns for investors. While some observers are of the belief the industry is not sustainable because they aren’t banks (and don’t have deposits), the industry continues to evolve, adjust and improve – addressing challenges head on.

Loan originations are growing again. Online lending is not a static industry but fairly agile and, if Orchard is correct, “things appear to be getting back on track”.

“While it’s now clear that all press is not good press, 2016 was a year of complete industry education, awareness, and understanding (EAU). 2017 will become the year of platform profitability, ubiquity and secured permanent capital for the leading online providers of credit to consumers, small business, mortgage, student and real estate loans.”

Can better products and lending practices heal marketplace lending’s hangover?, (Tradestreaming), Rated: AAA

In 2016, the trend reversed. For Lending Club, total originations for Q2 2016 came in at $1.96 billion, down from a peak of $2.75 billion in Q1. In 2Q15, Prosper reported a steep decline of over 50% in originations compared to same period a year before.

The hype can be clearly seen in PwC’s DeNovo quarterly report, which tracks fintech trends. Marketplace lending was the top trend for the first three-quarters in 2015 but dropped to the second-largest trend in 4Q15. In 1Q16, the industry did not even make the top 10.

The repercussions of such action are now visible with a rise in delinquencies and a damning report from Moody’s questioning the viability of the asset class. “Investor overreacted to that news,” said Wu, adding that the 2015 vintages are hurting current performance, overshadowing newer and better vintages that will generate long-term growth and returns for investors.

Marketplace lenders are at a crossroads. The resulting shakeout, however, might prove to be beneficial to the market.

“Investors are getting more realistic about returns, and platforms are getting more realistic about what they can get away with. They need to come back and offer products that are compelling for investors,” Wu concluded.

Lending Club’s Third-Quarter Earnings Release: A Preview, (Seeking Alpha), Rated: AAA

Lending Club guided investors to a 3Q loss of -$15M to -$30M.
This may be optimistic, as originations likely shrunk from $1.9B to $1.5-$1.75B.
The company is likely to announce an adjusted loss of $20-$40M.

In a previous article, we noted that Lending Club had several chores ahead of it in order to win back investor confidence.

Demonstrate to regulatory authorities that fraud had not spread throughout the company
Immediately adapt company expenses to match the lower revenue growth expectations
Shore up note investor confidence in the company’s efficacy and underwriting


lending-club-expenses-vs-revenue retail-loan-origination-lending-club

On Auto Loan Refinancing

Lending Club began as a way for consumers to obtain non-secured loans. The auto loan refinancing business represents a move into secured assets and puts further distance between Lending Club and the retail investors it once relied upon. The company noted that most auto dealers place a 1-3% surcharge on top of the loan that is backed by the bank, and the competitive advantage of the auto loan refinancing is that the company will be able to offer lower rates by cutting out the middleman.

In their statement, we noted that loan servicing is outsourced. With no ordination fee charged to borrowers and no servicing fee charged to lenders, it is unlikely we will see these loans on either the whole loan market or the fractional market. Either Lending Club will remain a balance sheet lender, or it will securitize the loans and sell them in batches to institutional investors.

Here is the Lending Club Presentation Where They Introduce Auto Loans, (Crowdfund Insider), Rated: A

The Powerpoint Presentation

On one of the slides, Lending Club itemized their four verticals today:

Personal Loans
Patient Finance
Small Business

Lending Club will announce Q3 results on November 7th at 8AM ET. Perhaps we will learn more at that time.

United Kingdom

Ex-FSA head: maturing P2P industry could cause regulatory headaches, (CityAM), Rated: B

Although Lord Turner said that peer-to-peer lenders are “a useful part of the system” he cautioned that regulators should be concerned by any move towards complex securitisation – when debts are packaged together as financial instruments to be sold on. The “real flashing red light” would be the emergence of instruments such as structured investment vehicles (SIVs), he warned.


Korea to become next fintech hub, (Korea Times), Rated: A

Korea is at the initial stage of embracing fintech, compared with other industry-leading marketplaces such as the United States or the United Kingdom,” the 31-year-old CEO said in an interview.

“But the fintech market here is getting more activated and popularized, as Korea is on a path to deregulate for emerging fintech business,” he said. “In the U.S. and China, the fintech market is growing fast, due to their open environment toward regulations.”

“Korea has tight and centralized financial information management infrastructure, which is why I believe the nation will become one of the world’s most influential fintech powerhouses,” he said.

“We collected some 800,000 big datasets in Korea to analyze investment patterns of each investor,” he said. “The big data allowed us to create a ‘recommended algorithm’ for investors. This is then used to create a more specific and personalized investment portfolio for them to reinvest on our platform.”

LENDIT is currently the nation’s top-tier P2P lending operator. The company has grown rapidly to have lent a total of more than 21 billion won in just 18 months after its foundation in March last year.


Canadian P2P Lending Loop open for business, (Bankless Times), Rated: A

Toronto-based Lending Loop, a platform connecting small businesses in need of financing with Canadian investors,  is open for business after completing its registration with the Ontario Securities Commission and additional regulators. It is available in every Canadian province except Quebec.

Founders Cato Pastoll and Brandon Vlaar launched Lending Loop in late 2015. The registration process to become an exempt market dealer began this March.


China’s Loosely Regulated Online Lending Has Inspired an Army of Freelance Debt Collectors, (Fortune), Rated: A

Chinese news website The Paper reports that hundreds of groups of freelance debt collectors have emerged on Chinese social media, dubbing the phenomenon a”gray chain of debt collection.” Users in these groups would share “best practices” from bombarding borrowers with frequent phone calls to posting public notices around their homes or even swarming them with “beggars,” practices that a Chinese lawyer told The Paper could veer into illegal territory.


George Popescu
George Popescu
Allen Taylor
Allen Taylor

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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