Due to stricter regulations and the financial crisis, banks have had to reduce credit issuances. This has led to non-bank lenders creating innovative business models to serve the market. The result is, more than half of new mortgages are now originated by non-bank marketplace lenders, which can keep growing only if they have access to permanent capital.
Securitization is an important avenue for young players to access capital and should be accomplished on a common yardstick. Whoever brings about this standardization has the opportunity to be the default setting for analyzing and accessing data for billions of loan dollars. There’s also a lot of capital waiting on the sidelines to invest in this market, but potential funders are hesitant because of regulatory issues or the inability to analyze the data presented to them. PeerIQ has a unique opportunity to be the partner of choice for investors by encouraging transparency and liquidity in the P2P lending market.
Since there’s no standardized data for investors to look at when comparing loans from different platforms or assets originated on the same platform, consensus evaluation of loans a cumbersome process. It has also led to complications in examining benchmark risks associated with credit. Therefore, investors are looking for tools to validate credit, analyze data, and apply the data to multiple scenarios.
These emerging challenges in P2P lending are hindering the natural combination of institutes striving for exposure to high yield assets and marketplace lenders looking for strong and sticky sources of funding.
New York headquartered PeerIQ was founded in 2014 to be the premier “credit risk analytics firm that helps institutions analyze, access and manage risk in the peer-to-peer lending sector,” said PeerIQ Founder and CEO Ram Ahluwalia, who has vast experience in the finance industry. Before starting his entrepreneurial voyage, Ahluwalia was senior vice president at Bank of America-Merrill Lynch. Later, he moved to Winged Foot Capital to serve as principal portfolio manager. His background in traditional lending and asset allocation helped him develop the PeerIQ concept.
The PeerIQ analytics platform aggregates data from leading online P2P marketplaces and offers advanced analytical solutions to investors that allow them to access loan performance and manage risk portfolios through a common framework. The company has raised $8.5 million in three investment rounds from some of the stalwarts of Wall Street (John Mack, Vikram Pandit, Arthur Levitt, Dan Doctoroff, and Eric Schwartz). Its team is made up of veteran capital market and technology executives.
The game changer for PeerIQ was its partnership with TransUnion, the third largest credit reporting agency in the U.S., to incorporate TransUnion’s database in the development of new products. This partnership will benefit both companies while standardizing data collection and foster transparency in the P2P lending market.
PeerIQ will develop new products by channeling TransUnion’s data set. Its mission is to serve investors with robust models and data history so they can participate in the lending space with confidence and drive investment into marketplace lending. TransUnion will also act as a distribution partner for PeerIQ, and its large customer base will help products reach sophisticated buyers. In return, PeerIQ will help Transunion dominate the growing alternate finance market with best-in-class analytics.
PeerIQ offers its advanced solutions to a wide range of institutional participants including FIs, banks, and ABS investors. For loan buyers, it has developed a portfolio monitoring and loan surveillance solution that provides real-time feeds of loan portfolios, purchases, performance, and returns. For ABS investors, it has developed structured finance analytics covering whole loans and ABS products, which provides collateral insight in a stressed environment. With third-party reporting of portfolio summaries, reconciliation, credit facility management, and securitization, PeerIQ provides accurate tracking of cash across tranches.
PeerIQ leverages in-house technology to evaluate the petabytes of data it has accessed after the TransUnion partnership. It is all set to speed up loan performance and analysis, which includes report generation across multiple nodes as well as loan optimization and pre-processing. Its technology helps store and access data in a systematic manner while providing a secure environment for data protection. Further, the company standardizes data by cleansing at scale and then represents that data across multiple platforms and asset classes. This helps develop comparable risk views for institutional investors.
After providing a benchmark to compare loan portfolios with market performance, PeerIQ performs other analytical functions, such as analyzing cash flow projections, and running those through a waterfall structure. Currently, when an investor evaluates a loan, he is able to look at just the loan and performance data. With the broader data set available from TransUnion, PeerIQ can provide the investor proprietary granular insights on loan performance through multiple credit cycles. This is possible because the characteristics of the newly originated loan are synced with previous loans and their history then used to predict outcomes for new loans in a variety of economic scenarios. This is a game changer for the young company.
The consensus valuation for the securitized assets can also be derived through PeerIQ’s platform, which is essential for large fund managers to evaluate fund performance, reporting, and trading.
It will be interesting to see what the future holds for this rising platform, and the investors that use it.