8/14/2017

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Online Lending LandscapeALAN  BAHR

SENIOR  VICE  PRESIDENT

S IMPLYCREDIT,  INC.

Agenda

• Peer‐to‐Peer (P2P) Lending Defined

• Performance of Key P2P Platforms

• P2P Growth Strategies

• Signs of Disruption

• Strategies for Credit Unions

• Q&A

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Peer‐to‐Peer (P2P) Lending Defined

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A Short Quiz

• Peer‐to‐peer (P2P) platforms crowdsource funds primarily from individuals who have cash and lend to individuals who need cash

True

False

• Which of the following is NOT a characteristic of P2P platforms?

A. Online Loan Origination

B. Capacity to Portfolio Loans  

C. Automated Underwriting

D. Loan Servicing

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FALSE

B

The Term Peer‐to‐Peer is a Misnomer

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80% ‐ 90%80% ‐ 90%

10% ‐ 20%10% ‐ 20%

Sources: PwC, Feb 2016

P2P Shareholders and Investors

• Institutional investors are banks, hedge funds, or other business entities… Approximately 40 different funds have committed to purchase assets from P2P platforms, with at least 12 different funds committing $200 million or more

PwC, Feb 2015

• Board members at the largest P2P platforms include executives at some of the largest banks in the world including Morgan Stanley and Citigroup... WellsFargo, through its venture capital arm, is the largest investor in LendingClub

Forbes, Oct 2014

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• Increasingly referred to as Marketplace Lending

• Transactions are consummated online, leading to lowered transactional costs—400 basis points improved op ex (according to Foundation Capital, Sep 2016)

• Institutional investors influence underwriting requirements

• The P2P platform generally services the loan

• There is usually no common bond between borrowers and investors—P2P platforms intermediate cash flows

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Summary: What is P2P Lending?

Performance of Key P2P Platforms

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Another Short Quiz

• P2P lending is growing, but it’s still a niche business

True

False

• P2P platforms encroach on credit union core businesses

True

False

• P2P platforms are only interested in low credit‐quality tiers

True

False

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FALSE

TRUE

FALSE

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P2P Volume Outpaces Other Lenders

• Four online lenders now originate more personal loans than all 5,900 credit unions combined

• They have a collective history of less than 30 years

• 2025 Origination Forecast

Personal‐‐$350 Billion

Small Business‐‐$206 Billion 

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Sources: TransUnionLPT Research, Nov 2015

Top P2P Lenders

• P2P Lenders tend to specialize in a niche business 

• However, they cross‐sell borrowers into other loan types

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Source: S&P Market Global Intelligence

$8.7

$2.3 $1.7

$1.1 $0.3 $0.0

$2.4 $1.4

$0.8 $0.2

$8.1

$0.8 $0.7

Lending Club

Prosper

Avant

Best Egg

Upstart

LendingPoint

OnD

eck

Kabbage

Square

Capital

Credibly

SoFi

Earnest

CommonB

ond

Personal SME Student

$ Billions

2016 Originations

P2P Fills the Entire Credit Spectrum

• P2P Lenders originate a high percentage of subprime loans

• Still TransUnion data indicates fintechs outpaced traditional lenders for credit score transactions between 601‐720

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Source: NSRInvest, April 2016

0%

20%

40%

60%

80%

100% Lending Club Prosper

Credit Quality

A B C D E F G

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P2P Growth Strategies

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Debt Consolidation is a gateway 

• First P2P offer is debt consolidation

• Take advantage of low cardholder loyalty

• Cross‐sell relationships

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Sources: LendingClub, April 2017Temkin Group, April 2017

Debt Consolidation

Home

Small Business

Auto

Education

Other

LendingClub Originations

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Credit Card Issuers Banks Credit Unions

Net Promoter Scores

Online Strategy is More than Automation

Target ConsumersTarget 

ConsumersDrive TrafficDrive Traffic

Offer Convenience

Offer Convenience

Welcome BackWelcome Back

Sophisticated pre‐screen analytics are used to 

make offers to the right people at the right time

Site traffic is generated through email, direct mail, social media and other campaign types

Online tools and processes focus on convenience and 

simplicity—not price

Compelling content, including online reports 

and statements, encourage repeat visits

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The Need to Focus on Millennials

2005:Final Birth Year

2014: $2 Trillion in Liquid Assets

2016: Largest Demo‐graphic

2020: $7 Trillion in Liquid Assets

2025: 46% of Nation’s Assets

• Millennials are now the nation’s largest demographic

• They will soon control nearly half of all financial assets

Source: First Data White Paper, 2015

The Importance of Convenience

• According to Viacom Media (2014):

o 71% of Millennials would rather have root canal than listen to their bank

o 33% believe they won’t need a bank in five years

Sources: consultancy.uk, June 2017FICO, 2014

Ability to Cross‐Sell

• Retention of customers who have used a P2P platform before is high, with 75% saying they would approach one again when seeking a loan

Verdict Financial, Jan 2016

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Signs of Disruption

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Disruption is Across All Financial Products

Are Credit Unions Concerned?

• 60% of credit union executives believe online disruption is negligible or non‐existent

Source: SimplyCredit Survey, Apr 2017

17%

43%

19%

11%

No Impact Negligible Impact Significant Impact Don't Know

Believed Effect of Disruption

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Strategy: Analytics, Content, Ease‐of‐Use

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I received a great loan offer.  Can you match it?

Can’t I apply and get what I need online?

I get all the financial information I need from a website.

Response to Disruption

Source: SimplyCredit Survey, Apr 2017

44%

26%

84%

18%

Don't want to visit branch

Gets financial info from web

Receives loan offers via email

None of These

Member Comments

65% 54%

17% 23%

App‐to‐Funding Online Tool

Content to Drive Online Traffic

Predictive Analytics

None of These

Credit Union Capabilities

The Threat is Expanding

Type of Lending

Business

Student

SecuredConsumer

UnsecuredConsumer

Investor Warehouse Deposits Lending Partners

Liquidity Source

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SimplyCreditSimplyCredit

Goldman Sachs

Goldman Sachs

SoFiSoFi

Common Bond

Common Bond

ProsperProsper

OnDeckOnDeck

KabbageKabbage

LendKeyLendKey

Lending‐ClubLending‐Club

LendingHomeLendingHome

AvantAvant

LendStreetLendStreetSunTrust / LightStreamSunTrust / LightStream

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Strategies for Credit Unions

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Bank / Fintech Partnering Strategies

Strategy Rationale Examples StyleWhich Partner is:

Channel Underwriter Lender

Grow Assets / Revenue Source

• LendingClub—Union Bank• LendingClub—BancAlliance• LendingClub—Credigy• LendingClub—Tennessee State Bank

FintechFintech(Online)

Fintech / Bank

Bank as Investor

Grow Customers • Prosper—SunTrust Co‐BrandedFintech (Online)

Fintech / Bank

Bank as Lender

Provide Borrowers Options

• Fundation‐–Regions Bank (SME)• Fundation—Citizens Bank (SME)• Prosper—Radius Bank

Co‐Branded Bank Fintech Fintech

Upgrade Automation / Tools

• OnDeck—JP Morgan (SME)• Avant—Regions Bank

White Label Bank Fintech Bank

Credit Union Strategies

Alternatives Pros Cons

Collaborate with Typical P2P Platform

Low cost of entry

Free Tools

Free Analytics

Way to grow assets (not loans)

No need for back office support

Member relationship?

Loan or investment growth?

Lack of control

Underwriting

Member Experience

Compete

Establish member relationship

Loan is originated

Retain control

Underwriting

Member Experience

High cost of entry

Platform development

Marketing support

Scale vulnerability

Management distraction

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Watch for credit union‐friendly options: No dollar‐cost entry Control over underwriting Loan / membership growth Sources: PwC, Feb 2016

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Closing Suggestions

• Be accessible in real‐time all the time

• Communicate through email and text reminders, alerts and promotions

• Have an app for everything, easy‐to‐use tools that work on all devices

• Be a partner—help navigate current and future members toward solutions

• Demonstrate innovation: Create experiences that are interactive and empower

Source: First Data, Mar 2017

Q&A

• See us online at: http://community.mysimplycredit.com

• Email me at: alan@simplycreditinc.com

• Call me at:

Alan BahrSVP, Business DevelopmentPh: 415.571.4233Email: alan@simplycreditinc.com

Thank You

Alan Bahr, SVP  alan@simplycreditinc.com

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