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An article in Forbes earlier this month about the traction of digital banks caught my attention. A survey of U.S. consumers conducted by Cornerstone Advisors showed that traction among many of these new neobanks (I use this term and digital bank interchangeably in this article) is not happening as quickly as many of us expected. According to the survey only 3% of millennials have their primary checking account at a digital bank like Chime, Simple or Moven.

The survey also found that only 7 million deposit accounts have been opened at digital banks and that only Ally, Chime and BankMobile have more than one million deposit accounts. Simple, the first digital neobank to launch almost 10 years ago, has just 517,000 accounts according to the survey.

Now, when Chime announced they had raised $200 million in March they claimed to have opened 3 million FDIC-insured bank accounts. So, it is quite possible this survey is undercounting the total or that maybe there is a difference between an open account and a funded one. Regardless, we have a long way to go before any digital bank can challenge the size of even a midsized regional bank.

There are, of course, many other neobanks not included in the survey. At LendIt Fintech USA 2019 last month the CEO of MoneyLion, Dee Choubey, said that his company has more than 4 million users today. Another example is Square Cash, which has over 15 million monthly active users and with the debit card some consumers are using this as a primary bank account. So, one could even include Square Cash as a neobank (Square is in the process of applying for a banking license).

All this should be put in the context of a special report in The Economist earlier in the month with the cover exclaiming “Tech’s raid on the banks”. One of the many interesting stories in that report was about “Flanker banks” where banks create a new brand to compete with themselves. We have seen that at JPMorgan Chase with Finn and Greenhouse by Wells Fargo and there are numerous examples internationally. But according to the Cornerstone Advisors survey Finn is not getting much traction yet – their number of 47,000 accounts is surprising, if not shocking, to me. Greenhouse is still in limited rollout.

Now, Rome wasn’t built in a day and this is certainly a marathon and not a sprint. Varo Money, who had 325,000 deposit accounts according to the survey, is still in the process of obtaining a full bank charter. Varo began discussions with regulators three years ago and when they receive their charter they will be the first neobank to do so. When it comes to financial regulation everything happens slowly.

The reality is that digital banks are still very much in their infancy. Many people are opening accounts at these new neobanks but keeping their traditional bank as their primary account. Even if the total numbers in the Cornerstone Advisors survey are correct (and they seem low to me) millions more users will be opening digital bank accounts in coming years. If traditional banks want these new users to come to them, they had better enhance their digital tools and offerings.

I am very bullish on the long term prospects for the neobanks. I think there will be several winners and I expect many of the big banks will be winners as well. Where I think the struggles will be is with smaller community banks and credit unions who will have a difficult time offering a compelling tech solution. All is not lost for these smaller financial institutions. Just look at Radius Bank. The community bank made the decision several years ago to become an online-only bank, closing six branches, and they are thriving with more than $1.3 billion in assets. Also, there are many banking as a service offerings hitting the market today that will help these smaller financial institutions offer sophisticated digital tools.

I am convinced several neobanks will become very, very large and profitable financial institutions but this will take time. And a lot of resources. So, it is a good thing that pretty much every major neobank has raised a significant funding round in the last 12 months. They are flush with cash, adding new users at a rapid rate and are poised to make a real impact on the banking system.

The post Are Digital Banks Struggling to Get Traction? appeared first on Lend Academy.

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During the week I share the latest marketplace lending and fintech news on Twitter as it happens. Then every Saturday I take the most interesting news items and blog posts from the past week and share them here.

No Branch, No Problem. Citigroup Bets Big on Digital Banking. from The Wall Street Journal – We start out the week with an interesting piece on Citi in the WSJ . Their bet on digital is paying off with $1B in new digital deposits in Q1, more than all of 2018.

Fintech executive sworn in as California’s top financial regulator from American Banker – The California Department of Business Oversight has a new commissioner and it is someone with an intimate knowledge of fintech, having just been general counsel of Affirm for the past several years.

Some Small Businesses See Big Benefits in Online Financing from The Wall Street Journal – The latest Federal Reserve small business credit survey shows an increasing percentage of loans going to online lending platforms and while many like the convenience and speed some rue the high cost.

Credit Card Loan Performance; PeerIQ’s Modeling Archive from PeerIQ – This week’s PeerIQ newsletter analyzes the metrics from the largest credit card issuers and determined that delinquencies have picked up from their lows but remain significantly below their peaks.

Payday Lenders Drum Up Customer Support to Ease Regulations from The Wall Street Journal – The payday lending industry is soliciting customers to write comments to the CFPB demonstrating support but many of the comments are remarkably similar…

PeerStreet Reports Accelerating Growth as the Real Estate Platform Tops $2 Billion in Property Lending from Crowdfund Insider – Real estate platform PeerStreet continues to grow. Interesting interview with co-founder Brett Crosby.

UK becomes world’s top fintech hub as startups rake in £4.5bn from City A.M. – This is why we have LendIt Fintech Europe in London every year. It is not just the top fintech hub in Europe it is the world leader.

But We Have a Relationship…. from Fintech Junkie – The latest from Fintech Junkie (Frank Rotman) takes on relationship banking and how big banks often mistake inertia for a real relationship. But there is a new era of relationship banking close at hand.

T-Mobile Money Rocks Banking Model Using Fintech Engine from The Financial Brand – Good in-depth piece on the new T-Mobile Money account that has been developed with BankMobile.

Meet the 2019 CNBC Disruptor 50 companies from CNBC – The annual Disruptor 50 list is out from CNBC featuring private companies whose innovations are changing the world. Several top fintech companies made the list.

Goldman Sachs execs are opening up about their plans for Marcus, and they think it can do to banking what iTunes did to the music industry from Business Insider – Fascinating piece on Marcus and their plans to become a major player in consumer finance.

Treasury Official Hired to Fix Fannie and Freddie Is Leaving from The New York Times – This is actually pretty big news for fintech because Craig Phillips knew our space well and was a supporter.

From the Lend Academy Forum

The Lend Academy forum is where investors go to discuss p2p lending. Below are some topics that were being discussed this week.

LC now dropping E grade loans – Investors reflect back on historical returns after learning that LendingClub will no longer offer E grade loans.

STRATA Public Unsecured Notes balance not equal LC balance – An investor shares an issue related to closing out a LendingClub IRA.

The post Marketplace Lending News Roundup – May 18, 2019 appeared first on Lend Academy.

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Small businesses across the country are still not getting all the capital they need. Many small business owners do not see banks as a viable funding alternative either from a time or ease of use perspective. So, they are turning to online lending platforms in record numbers. When it comes to longer term (three to five years) loans the online lending leader is clearly Funding Circle.

Our next guest on the Lend Academy Podcast is Bernardo Martinez, the Managing Director of Funding Circle USA, a position he has held for over a year now. He took over from Sam Hodges, who we had on the show back in 2015.

In this podcast you will learn:

  • The knowledge that Bernardo brought with him from PayPal.
  • What he has learned in his first year on the job at Funding Circle.
  • The range of terms for their small business loans.
  • The types of investors they have on their platform today.
  • How and why 72% of their customers came to Funding Circle first.
  • How their offering compares to what is offered at banks today.
  • Who Bernardo sees as their biggest competitors.
  • How they view the SBA and their loan guarantee program.
  • How the LendingClub partnership came together.
  • Why no other online platform has reached significant scale in term loans for small business.
  • How they expanding their business into Canada.
  • Who they are hiring for their new Denver office.
  • How they are approaching their relationships with regulators in DC these days.
  • How they helped get SB-1235 passed in California.
  • How Funding Circle is monitoring their risk as it pertains to the economic cycle.
  • What is most exciting for Bernardo today at Funding Circle.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech Europe 2019, Europe’s leading event for innovation in financial services.

Download a PDF of the transcription of Podcast 199 – Bernardo Martinez.

Click to Read Podcast Transcription (Full Text Version) Below


Welcome to the Lend Academy Podcast, Episode No. 199. This is your host, Peter Renton, Founder of Lend Academy and Co-Founder of the LendIt Fintech Conference.


Today’s show is sponsored by LendIt Fintech Europe 2019, Europe’s leading event for innovation in financial services. It’s coming up on the 26th and 27th of September in London at the Business Design Centre. We’ve recently opened registration as well as speaker applications. You can find out more by going to lendit.com/europe.

Peter Renton: Today on the show, I’m delighted to welcome Bernardo Martinez. He is the Head of Funding Circle’s US operations, he’s officially the Managing Director of Funding Circle US. We wanted to get Bernardo on the show because he’s been in the job now a little bit over a year, he took over from Sam Hodges, I think it was April of 2018, and I wanted to get him on the show to talk about a variety of things.

We actually…we do cover a lot of territory in this interview, we talk about the lessons he’s learned, what he brought over from PayPal, we talk about why banks aren’t lending to small business, we talk about who he sees as his main competitors, the competitive landscape in the US. We talk about his recent op-ed in American Banker discussing the SBA Guarantee Program, we talk about the Canada expansion, what he’s doing on the regulatory front and much more. It was a fascinating interview, I hope you enjoy the show.

Welcome to the podcast, Bernardo!

Bernardo Martinez: Thank you, glad to be here.

Peter: Okay, so I like to get these things started by giving the listeners a little bit of background about yourself so why don’t you tell…I know you’re originally not from here, so tell us a little bit about your background, how you came to be in America and what you’ve done in your career to date.

Bernardo: Yeah, thanks Peter, I’ve been actually in the United State since 1997, I moved from Venezuela to do my graduate degree at Duke University and after that I spent most of my time in the financial services industry working in areas like Bank of America, actually went abroad to work in a local bank in the Caribbean managing American Express as an international operator and prior to joining Funding Circle, I spent almost three years actually working with PayPal managing the US Business Lending Division for them.

Peter: Okay so then, what are some of the…you know, PayPal Working Capital, it’s got some decent scale these days, I know you were sort of in charge of building that up so I’m curious about what are some of the lessons you learned at PayPal that you’ve really brought over to Funding Circle.

Bernardo: Since I joined PayPal, back then, I think the one thing that I was able to learn a lot was how important the customer experience is as part of the lending process and how you can actually create a true conversion as you create a transparent product and an easy process. So I think that’s the biggest learning that I took from PayPal and that’s one of the things that I’m very focused on since I came to Funding Circle a year or so ago, trying to replicate some of those learnings and trying to put it here in practice and basically bring the product up to par and improve upon what we’ve got today.

Peter: Right, right. Okay, so you’ve been a bit over a year in the job, I know you replaced Sam Hodges who we had on the podcast a few years ago, so tell us about how the year has been, maybe start with what’s been the biggest challenge for you over the past year.

Bernardo: As you would imagine, coming from a different type of lending environment of short term lending, I moved to Funding Circle which is more of a long term lending sort of provider so I spent the last year really learning our processes and understanding our weaknesses and opportunities and I would say one the biggest things I’ve learned is we have a tremendous opportunity to focus on partnerships.

I feel pretty good that after that first year we’re starting to see a lot of that focus on partnerships. It came to fruition, as you know, we signed at the beginning of the year, with Stripe, a partnership and most recently, we did a partnership with LendingClub. I feel pretty good the first year of learnings here have resulted in a good outcome that started this year.

Peter: Right. Okay, so we will talk about some of those partnerships in a little bit, but before we do that, I actually want to get to sort of the details of your loan offerings, just so everyone is clear, I know these are longer term loans, but why don’t you give the listeners…what are the range of interest rates, loan sizes, loan terms, that sort of thing?

Bernardo: You think about us, we are offering installment term loan products that have monthly payments, it basically goes from $25,000 to $500,000, from six months up to five years. On average, our loan size is $130,000 and actually our average APR is around the low teens so it’s a little different from what you see in the industry today with some of the alternative lenders.

Peter: Right, right. And then what about the other side of the business, I’ve spoken with Samir Desai many times and he’s spoken at LendIt saying he’s very much a proponent of the pure marketplace so I’d love to get some sort of some sense of the investors that you’re dealing with. I mean, you don’t have to name names obviously, but like what are the types of investors that you have in your platform today, are you still doing the fractional loans to individuals. Just tell us about the investor side.

Bernardo: Yeah, from an investor perspective, we are primarily an institutional investor and what I mean by institutional there are twofold. One is our asset managers as well as sort of banks so those are the majority of our funding today. As you know, last year we signed a deal with Alcentra for $1 billion and purchase over three years and also we have been working with INTRUST since actually a year and a half ago, doing the same thing on the institutional side.

To your question about fractional, we do have fractional today, it’s not something we are growing at this point, but we’re investing some time to think through how we can make it bigger in the foreseeable future.

Peter: Right, right. Okay, so then I was reading…I think it was last week or the week before, you released a report with Oxford Economics talking about, you know, basically small business lending, the state of small business lending basically and I was struck by the fact that small business lending is just 0.7% of bank balance sheets, that’s…I mean obviously, they’re smaller loan sizes, but…let’s talk about banks. I know you’re partnering with banks on a lot of your initiatives, but are you finding that your customers no longer consider banks a viable lending option?

Bernardo: What we’re finding is in our service is like 72% of our customers actually came to us first because they found us to have a great process and a great product for them and the ones who didn’t come first to us, they kind of found that the bank process are not up to speed to what the market is offering so they spend almost eight hours just completing the application without really knowing what the end decision will be. So I think that small businesses, in general, are starting to move toward alternatives beyond banks to really facilitate their capital access and we are pretty happy to see that our borrowers are starting to see us as a great choice.

Peter: Right, so you said your borrowers are going to you first, how are they finding out about you? I mean, I know you’ve got some recognition obviously, everyone in fintech knows you, but the average borrower, I imagine, still has…isn’t aware of Funding Circle, the majority of them, I imagine, so how are you getting the word out, how is it that such a large percentage come to you before a bank?

Bernardo: A few things, I think number one, as you know, we have done…the way we approach our marketing is twofold. Number one, we use direct marketing as an approach and we do direct mail… print in order to reach out to customers. So some of them are going directly through as a response of our direct marketing processes.

In addition to that, we have done partnerships with LendingClub, but also with portals like Credit Karma, NerdWallet and Fundera that actually aggregate a lot of offerings. We compete in those lead aggregators marketplaces and customers see us there and basically come to us directly. Again, I think that two prong approach help us get the word out and enable those customers to access us directly.

Peter: I’m sure there’s a subset of your customer base that would have received a bank loan had they decided to go down that route. Do you have some sense of…I mean, obviously you’re going to be more expensive than a bank, I imagine, for most of those, but how do your interest rates compare to what the banks are charging today?

Bernardo: I would not consider ourselves more expensive. I think we’re affordable and we’re close to a bank. I think the main difference is actually how long is the process going to take and how transparent and easy the process is when you compare us to banks. So we feel that for like the best rate, you know, best risk rate, we’re pretty competitive with banks and the reality is we can basically finish a loan from start to finish between five to seven days, while a bank may not be able to respond within that time frame.

So I feel pretty good that what we offer our customers is affordable, it’s transparent and is the right…it fits what they’re trying to do and the majority of the banks, at the end of day, we know they’re very focused on their existing customers and they don’t necessarily actually have the right processes for those customers so I think we [inaudible] in that regard.

Peter: Right, right. Okay, and so there are obviously others that are out there in the marketplace apart from banks. I mean, I’m just curious when you’re competing for customers. It’s interesting that now that LendingClub is not originating loans themselves, it feels like there’s not that many offering term loans, but you obviously have…you know, PayPal has got a large and growing business, Square is as well although they’re sort of for micro businesses.

Then you’ve got OnDeck and Kabbage, I’m sure there’s some overlap there but maybe you can tell us…you know, when you’re in the market I’m sure you’re talking to your customers and asking them who else they’re considering, I mean, who are the names that come up, are they some of the companies that I mentioned, do you still consider those direct competitors or not?

Bernardo: At the end of the day when I look at the marketplace, I thinks there’s three main competitors in our market. I mean, banks are certainly one, as you said, and in banks I actually think there are two components, sort of the big banks and the regionals and community banks. So those are sort of the ones that we compete with.

I would say community banks are the ones we see most of the time. When it comes to sort of the non-bank players, I think there are two categories and you kind of mentioned sort of a captive network which are really the PayPals’, the Squares’ of the world and I think what’s different about us and why we’re winning in certain cases for customers is they are really focused on the short term and they are really…in a way, they’re offering a very specific use case which is inventory financing for the most part.

In our case, as our loans have so much range from six months to 5 years, they can use it for multiple use cases, not only for inventory financing, but they can use it for debt consolidation or capital expansion. So we’re winning in the sense that our product has more flexibility and at the end of the day, that’s more important so that’s one way how we’re kind of winning against sort of the captive networks in that process.

When you look to the alternative lenders, you know, in general speaking terms, they also focus on short term and they tend to have a higher rate, interest rate, compared to ours. So we feel that we have a better product and therefore, we are able to sustain not only the multiple use cases that we offer, but also a better rate for them so that’s how we’re winning in those spaces as well.

So we feel pretty good with our positioning and we’re starting to make good traction. As you saw lately, we released our stats and we actually have done more than $2.2 billion in originations and we have served more than 13,000 customers since we started.

Peter: Right, which I know. I think you mentioned as well, it’s more than the vast majority of banks are doing so you certainly have reached some significant scale there.

I want to actually switch gears a little bit, I was fascinated to read your op-ed from earlier this year in American Banker, it’s been something that’s been really on my mind as well and just to summarize for those who don’t know, you had this op-ed…basically it was talking about the SBA, the Small Business Administration, and how…you know, they have this loan guarantee program that’s really important, that has really led to a significant number of banks actually offering small business loans. They have not expanded it with very few exceptions to the broader fintechs like yourself so I’m curious if you had any feedback from that, from the SBA, I mean, what are your conversations like there? Are we going to see an SBA-backed Funding Circle loan anytime soon?

Bernardo: We’re working with the regulators in that regard, we haven’t had specific feedback but there’s a lot going on?, so we feel pretty good about that. The really important part of this type of program is we have done this in other countries so we have programs like these in the UK, Germany and the European market, we feel pretty good that we can actually enable governments to impact directly small businesses when times are tough and I think our platform is unique in that regard that we can do that.

So we are trying to basically to partner with the SBA or any other government agency to help set up portals like the ones we have done in other countries because we feel that it’s an important part of our mission in our platform. So yeah, nothing to share at this point, but I think there is a lot of dialogue going on in terms of what we can do and how we can do it. I’m pretty hopeful that we can do something

Peter: Right, so on that, I know your operation really well and I know in the UK you’ve got the British Business Bank that actually invests directly in the loans and I think the European Investment Bank is doing it in Germany, I believe or it might be Germany and in the Netherlands, maybe you can correct me there, but these initiatives are actually government funds going directly into the loans themselves as an investor on the platform which is different obviously to what the SBA does. Are you saying that you’re also talking…I mean, I don’t know in the US any government investing directly in any platform, are you having those conversations as well?

Bernardo: No, I don’t think we’re not having those conversations yet, but I think what we’re trying to tell the regulators or trying to start having those dialogues is about how we can basically, either leverage the [inaudible] structure that they have in place and how we can work through it. We don’t have to mimic necessarily what we have done in the European markets, but definitely, we would like to have…being a partner of the government to help the small businesses in the market and I think that’s what we’re trying to work through it.

Peter: Right, right. Okay, so I want to talk about partnerships and let’s start off with the LendingClub one because that’s been in the news fairly recently and I wrote a piece about it. We had a conversation before that was announced and…you know, maybe tell us a little bit about the background of how that came together and just how you decided…obviously it’s a pretty…it’s a nice borrower stream for your guys, I imagine, but just tell us a little bit about how that process came together.

Bernardo: One of the things that I like about the LendingClub partnership is that if you go back into how the industry was kind of formed, you know, we have been working with LendingClub since the inception kind of advocating in the policy forums around transparency, responsible business lending and we have been working since the beginning of that, in those two topics, and I think when the opportunity came…it was pretty good to see how we can, both of us, including Opportunity Fund as well can partner together to really put our policy, sort of thought process into action with the partnerships.

So now you have the three of the major players that have been advocating for transparency and really pushing a lot of legislation around that…to be a responsible lender, to kind of offering a small business loan in what we truly believe is the most transparent, the most robust lending that we can offer to small business owners in America so it’s fascinating how we move from policy to actually action so I’m pretty excited about that and I think the partnership will be a great success for all of the parties involved.

Peter: So I know it has only been a couple of week, I mean, I believe I think you went live, we’re recording this in May 6th and I think it was just a couple of weeks ago that you went live, but are there any initial thoughts on the traction the partnership is getting?

Bernardo: I would say things are working well, I mean, we will not disclose any numbers, but I think in general the partnership is tracking expectations.

Peter: Right, right. Okay, so something that is curious to me and it’s actually not unique to the US, I mean, you guys have done extremely well in small business lending in multiple geographies now, obviously the two biggest are the UK and the US and it’s interesting to me that in the UK no other company has got significant scale when it comes to small business lending, online originators of small business loans and the same now, particularly with LendingClub sort of now moving to being a partner of yours rather than a competitor. No one in the US is really getting scale in the online space when it comes to small business lending, term loans I’m talking about obviously, why do you think that is?

Bernardo: At the end of the day, small business is a very different segment and I think that’s one of the reasons why banks have struggled in the past. At the end, the key of this segment  really requires a lot of focus so when platforms or companies decided to enter the segment as a secondary item with a more broader strategy, it’s hard to make it work and I think that’s what…you know, we have decided a while ago that we want to focus on this segment alone and that’s where we’re putting our effort and energy so I think that’s why we have been successful, is the focus that we have had and we will continue to have in the future. It’s going to be the key differentiator for us from the rest.

Peter: Right, right. Okay, I noticed another thing you announced recently was expansion to an additional country, going to Canada. Now I’m curious about this because obviously Canada, directly north of the border here, but has a banking system probably more similar to the UK than it does to the US. So how involved is the US operation going to be in building that business or is it really going to be run out of the UK?

Bernardo: Well I think at the end of the day, we actually have somebody dedicated to the Canada business based in Toronto so at this point we decided to enter earlier in the year and I think we’ll see operations up and running in the second part of the year. We have somebody dedicated, the person came from..

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I spent two days in Phoenix this week at the CFSI Emerge Conference. This an annual event put on by CFSI (now called the Financial Health Network) focused on financial health. There were several excellent sessions but the one that I keep thinking about was one about employer innovation in financial wellness. The speakers were Peter Hazlehurst, the Head of Payments and Risk at Uber and Shawn Leavitt, the SVP of Total Rewards at Comcast.

What was fascinating to me was how much financial services is a central part of their businesses, particularly in the case of Uber. They were one of the first companies to make payments frictionless and invisible and they continue to break new ground when it comes to financial services.

Let’s start with small dollar lending. Uber issues drivers a debit card where they can receive their earnings but they can also go negative on the balance of that card up to $100. So, when a driver has a zero balance on their card they can still go and fill up with gas before they start their shift. What is also really innovative is that Uber allows for almost real time earnings. Drivers can request their balance be sent to their debit card up to five times a day.

For some drivers they literally have no money. So, when they wake up in the morning they desperately need to earn money from Uber to survive. So they will drive for a couple hours and then be able to afford breakfast, a few more hours then lunch and more hours in the afternoon and they can feed their family at dinner. This real time payment is powered by Visa Direct as they can push money to a debit card for very low cost. This could become a model for many other industries as employees and contractors demand payment quickly for work already done.

What was most interesting is when Peter Hazlehurst said that Uber wants to make a dollar earned at Uber 20% – 30% more valuable. While he didn’t say exactly how Uber would do that one way is through the delivery of more valuable financial services. For example, he said that some Uber drivers have poor credit and often overdraw their bank accounts. They often send money they have earned through Western Union to their family in another country. Now, he didn’t say Uber would be developing services to satisfy these needs but you can clearly see where they might go here.

This is something that Brett King talked about in his latest book, Banking 4.0. He said that banking will become an embedded function in a banking as a service model. This means that companies like Uber can provide banking services, in partnership with an actual bank (Uber’s Visa debit card is issued by GoBank), but the bank operates in the background. We are seeing this with the recently announced T-Mobile Money where a bank account is offered in partnership with BankMobile.

The context of the discussion at Emerge was around financial wellness facilitated by employers. Comcast said they want to personalize payroll at the individual level. They have piloted an emergency loan program that had significant uptake. An employee might have a credit score of 540 and not be able to get a loan beyond a payday lender. But there is no reason why Comcast shouldn’t give a long time employee a $1,000 loan at 6% and have them pay it back through a payroll deduction.

The trend here is that large companies like Uber and Comcast will offer more and more financial services as time goes on. By controlling the financial side of any interaction with their customers or employees they can boost brand loyalty, drive more business or increase employee retention. Or maybe do all three. Banking as a service is only going to grow from here.

The post Big Brands Breaking New Ground in Financial Services appeared first on Lend Academy.

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In April 2018, LendingClub provided us with $5,000 to open a brand new account. Since then we have been chronicling the status of the account on a quarterly basis. Below are links to the full series of blog posts in chronological order:

No More E-Grade Loans at LendingClub

Before we get into the performance of the account I’d like to discuss a few changes that LendingClub has made since our last update. Probably the most significant news was that as of May 7, 2019 LendingClub stopped offering new grade E notes except those corresponding to certain previously qualified or approved loans. Beginning July 1, 2019 no grade E Notes will be available to investors. Long time readers will remember the days when E grade loans produced high returns, often over 10% annualized for investors. This changed in recent years as defaults increased, particularly around the higher grade loans. Most investors saw their returns begin to fall in mid-2016 or even before that.

Last year, LendingClub decided to stop offering F & G grade loans to investors so it is no surprise that they continue to focus on more prime consumers, especially when you consider that banks make up a majority of their investor base. LendingClub also included this statement in a recent blog post:

We view this change as a natural evolution of our dynamic platform that seeks to match consumer demand with investor risk appetite. Grade E loans have historically accounted for a small percentage of volume on the platform.

What’s also interesting is that last week during LendingClub’s Q1 2019 earnings call which we covered here, CEO Scott Sanborn discussed the possibility of partnering with institutional investors on expanding the credit box to riskier borrowers. The way this might work is that LendingClub would host an alternative credit model instead of their own, for instance a model targeting thin file borrowers. Then investors could invest in loans originated by this third party with LendingClub only facilitating these transactions. But that is probably some time away from happening.

In LendingClub’s Q1 2019 platform update published to their blog, they discussed that lenders as a group continue to tighten credit. They also shared news about new tools they are testing such as the ability to detect borrowers who are more likely to default earlier in the loan cycle. LendingClub made no interest rate changes in the quarter, but are continuing to selectively tighten certain higher risk segments, while simultaneously growing lower risk segments.

Update on New LendingClub Account

Digging into the account’s performance it is worth reiterating that investors don’t have a clear picture of returns until the account is seasoned, which is about 18 months weighted average age. This is demonstrated in the image below as stated returns continue to decrease with age and stabilize around the 18 month mark.

The capital in my account had not been fully deployed at the end of the first quarter of 2018. In our next quarterly report we will share returns using XIRR which will start to give us an idea of where returns will fall.

As of May 14, 2019

When I first created this account I used LendingClub’s Automated Investing which suggested the allocation below. You’ll note the small allocation to E grade loans which will eventually fall to 0% as loans start getting paid off.

As of May 14, 2019


It will be interesting to see where the returns on this account end up falling. With little changes to interest rates recently, LendingClub is still an attractive investment in my opinion with returns around 6-7%. For comparison, interest rates on 5 year CDs are now around 3%. One thing that surely attracted investors who found LendingClub before 2015 was the potential to earn 10%. With the removal of E, F and G grade loans this is something that would be nearly impossible to achieve today. Clearly LendingClub has made it clear the types of borrowers they want to focus on.

The post New LendingClub Account Performance – Q1 2019 appeared first on Lend Academy.

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During the week I share the latest marketplace lending and fintech news on Twitter as it happens. Then every Saturday I take the most interesting news items and blog posts from the past week and share them here.

Fintech Needs To Stop Tinkering At The Edges Of Big Data from Forbes – In an interesting column in Forbes the CEO of ZestFinance says that lenders need to go all in on machine learning, it is no good having more data for underwriting and then using it ineffectively.

Don’t overhaul CRA just for the sake of it from American Banker – There has been much talk about reforming the Community Reinvestment Act but in this American Banker op-ed the author argues that maybe just a few tweaks are necessary.

Brexit delays Goldman’s Marcus launch in Germany from Financial Times – Last year Goldman Sachs said they were going to launch Marcus in Germany in 2019 but given the Brexit delay they have now decided there is no hurry to setup a new deposit base in the EU.

Citi wants to bring credit card perks like miles to bank accounts from American Banker – Interesting move from Citi looking to bring perks to bank accounts as they try to grow their deposit base.

OakNorth launches mortgages for entrepreneurs from Tearsheet – Being an entrepreneur often means it is difficult to get a mortgage. UK fintech leader OakNorth is looking to change that with their new mortgage offering.

Brazil fintech Nubank opens Mexico office as it seeks Latam expansion from Reuters – Brazilian digital bank Nubank is one of the top challenger banks in Latin America with 8.5 million customers and they are now expanding into Mexico.

SoFi launches gig-focused ETF from TechCrunch – SoFi continues to ramp up their investment offerings. This week they have launched a new ETF focused on the gig economy.

New Rule to Shift Debt Collection Activities to Digital Devices from The Wall Street Journal – The days of debt collectors bombarding debtors with phone calls may be coming to an end as the CFPB unveiled a plan to update rules aimed at curbing such calls.

Fraud alert: What to watch for in online business lending from American Banker – An interesting look at how online lending platforms are combating fraud today.

Amazon just launched a lending service in China while shuttering its local marketplace from CNBC – It is no secret that China is a difficult place to do business for US companies, even Amazon struggles. Fascinating to see them create a Fundera type offering there referring loan applications to outside lenders.

Facebook picks London as base for WhatsApp push into payments from Financial Times – This is a big shot in the arm for London. Facebook has chosen the city to work on a major fintech initiative as WhatsApp pushes into payments.

Amazon Now Among The Top Online Small Business Lenders in The United States from deBanked – According to deBanked there are five small business online lending platforms that loaned more than $1 billion in 2018.

Banks Waking Up to Fintech Threat Throw Billions Into Digital from Bloomberg – One thing that fintech has done is make the banks up their game. They are now spending billions on technology to try to keep up with the innovative challenger banks.

Ex-SoFI CEO’s Startup Closes $1 Billion Credit Line on a Blockchain from Coindesk – At LendIt Fintech last month Mike Cagney told us this was coming. In preparation for the world’s first securitization done 100% on the blockchain Figure has closed a $1 billion funding line.

From the Lend Academy Forum

The Lend Academy forum is where investors go to discuss p2p lending. Below are some topics that were being discussed this week.

LC survey last week of April 2019 – did you get it? – LendingClub recently sent out a survey to some investors.

LC now dropping E grade loans – Starting July 1, LendingClub will no longer offer E grade loans.

STRATA Public Unsecured Notes balance not equal LC balance – An investor shares an issue related to closing out a LendingClub IRA.

The post Marketplace Lending News Roundup – May 11, 2019 appeared first on Lend Academy.

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A travesty of today’s financial system is how easy it is to launder money. Despite billions of dollars in expense and tens of thousands of people attacking this problem banks stop around 1% of money from financial crime. Incremental change is not going to help here, we need a new approach.

Our next guest on the Lend Academy Podcast is Charlie Delingpole, the CEO and founder of ComplyAdvantage. His company is taking a different approach to catching financial crime. He has created an algorithmic approach to data gathering and an API-based system for compliance that allows them to work with fintechs, banks or even non-financial companies.

In this podcast you will learn:

  • The visit to a remittance store that led to the founding of ComplyAdvantage.
  • Why it is so hard to catch money laundering criminals.
  • What ComplyAdvantage does exactly.
  • What makes ComplyAdvantage different to others in the industry.
  • How they are able to interface with both legacy banks and new fintech companies.
  • Why it was so important to build everything from scratch in house.
  • What data their API sends back to their customers.
  • Why globalization has made money laundering so much more difficult to catch.
  • The three countries they have operations in today.
  • Why they had to become a global company from day one.
  • Charlie’s thoughts on machine learning and how important it is in their business.
  • Why the opportunity for ComplyAdvantage goes far beyond financial services.
  • The scale they are at today as far as API load.
  • Who is backing them and how they were able to raise from A-list VCs.
  • Why Charlie is optimistic we can solve the money laundering problem.
  • What is next for ComplyAdvantage.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech Europe 2019, Europe’s leading event for innovation in financial services.

Download a PDF of the transcription of Podcast 198 – Charlie Delingpole.

Click to Read Podcast Transcription (Full Text Version) Below


Welcome to the Lend Academy Podcast, Episode No. 198. This is your host, Peter Renton, Founder of Lend Academy and Co-Founder of the LendIt Fintech Conference.


Today’s show is sponsored by LendIt Fintech Europe 2019, Europe’s leading event for innovation in financial services. It’s coming up on the 26th and 27th of September in London at the Business Design Centre. We’ve recently opened registration as well as speaker applications. You can find out more by going to lendit.com/europe.

Peter Renton: Today on the show, I’m delighted to welcome Charlie Delingpole, he is the CEO and Founder of ComplyAdvantage. Now, ComplyAdvantage are a fascinating company, they are in the anti-money laundering space, or really the compliance space and they have developed new technology which allows them to connect with pretty much any financial institution and help them really manage their compliance risk when it comes to anti-money laundering.

So we talk about how they do that, how he was able to build new technology from scratch and how he’s able to manage really integrating with very archaic technology at banks, as well as with some of the newer fintech companies. We also talk about what’s wrong with compliance today and how we can really get to a point where we’re 10 times or even 50 times better at it than what we are today. It was a fascinating interview, I hope you enjoy the show.

Welcome to the podcast, Charlie!

Charlie Delingpole: Great to be here, Peter.

Peter: Okay, so I like to get these things started by giving the listeners a little bit of background about yourself. You’ve had an interesting career, this is not your first foray in fintech so why don’t you give us a little bit of background about yourself.

Charlie: Yes, so I started my first company when I was 16, my second company was in the peer to peer lending space so I started MarketInvoice back in 2009. Back then, it wasn’t really fintech, it was just kind of invoice financing, but then very soon it was this maelstrom of sexiness which became fintech (Peter laughs). MarketInvoice was kind of a peer to peer invoice finance platform lending money to small companies, lent a few billion now, raised $35 million dollars from Santander and Barclays back in February. I started this company ComplyAdvantage about five years ago after MarketInvoice and we’re roughly 200 people and 450 clients and four offices around the world now.

Peter: Okay, so we had Anil on the show last year so I think the listeners are pretty well aware of what MarketInvoice is all about, I guess the question is why did you leave MarketInvoice which obviously has grown a lot since you left so what was the impetus to leave and deciding to start ComplyAdvantage?

Charlie: I think things were going very well at MarketInvoice, lots of opportunity elsewhere. Anil was doing a great job so I thought it best at that time to part ways and move on to something new and exciting.

Peter: Okay, so then what was the ‘a-ha’ moment or the idea that led to the founding of ComplyAdvantage, what was, you know, the germination of the company?

Charlie: So kind of the damascene moment, I think, was when I walked into a Somali remittance store in Mayfair in 2014. This company was based over at the Saudi Embassy, they had these big armed guards juxtaposed with these large trucks of cash moving money from from Somali and Afghan communities around London and just seeing the people there having to deal with processing huge amounts of payments which could be going to Al-Shabab, the Taliban, ISIS or could be going to your uncle and to see how terrible the software was and the data was and seeing how…for me, it was extremely obvious how terrible, also how consequential what they were doing was.

Therefore, at that point, I had no real choice other than…like I’m just going to have to go and build this business because I think given my experience in the past, given what I knew at MarketInvoice in regards to how difficult it was to onboard investors, how difficult it was to understand the risk of which companies to lend to, given what I knew about the market at JP Morgan, given I knew about the potential in terms of technology and data from my first company and from working on MarketInvoice, I saw an amazing opportunity to restructure and reinvent something which is obviously being done in a really archaic and terrible way.

Peter: So with that…it’s not only that, I mean one of the things about financial crime, I continue seeing this stat sort of bandied around, is that like we catch 1% or thereabouts of all of money laundering globally and we have these massive compliance organizations inside banks that don’t seem to do a very good job. So I guess maybe…before we get into ComplyAdvantage, why is it so hard, why is it so hard to catch money launderers?

Charlie: So to an extent, it’s an arms race and it transcends every geography, every industry, every client type and it’s the full spectrum of human behavior so it could be Trump who today cut down on Iranian sanctions with oil, the next day it could be human trafficking, it could be wildlife trafficking, it could be trying to defraud a peer to peer lending exchange, it could be money laundering.

And because money is so fungible and can be disguised and transmitted in so many different things and in different services, the nature of capital means it can morph and flow and therefore, it’s impossible to define and therefore it’s everywhere, as in you can disguise it in inflated invoices, you can do it with loans and, therefore, what you have is this impossible arms race between criminals, terrorists, money launderers and institutions who are the vectors and vehicles that they try to exploit.

Peter: Okay, so then maybe we can segue into ComplyAdvantage and maybe you can tell us exactly what your company does.

Charlie: So principally, what ComplyAdvantage does is help companies manage the risk around sanctions and money laundering. So on a very basic level it’s, am I allowed to lend money to this company? No, because they’re an Iranian general who’s funding the Iranian terrorist group, or no, because they’re the Venezuelan central government ambassador and therefore they’re prohibited from any kind of funds flowing to them. So, on the most basic level it’s, am I allowed to do business with this person?

Peter: So what you do then is you have…I imagine you just have a massive database, right, that’s constantly being updated, I imagine. I mean, so are you really just focused on the binary decision on is this person a good and reputable person so I guess that’s one part of the question. Two, is then…what is the secret sauce? I imagine a lot of people have databases of bad actors so what is your secret sauce?

Charlie: So the reason why everyone has failed in the past is because it’s a very, very challenging problem. So what you have now is hundreds of millions of dollars spent on manual labor and despite all of this expense, despite all this investment, despite all this technology being deployed, people still get fined billions of dollars. The terrorists and money launderers still win, right.

So for whatever reason in the past, no one has managed to solve this problem and so to me, it was trying to build a company that was capable of succeeding where everyone else has failed, right, and so that was principally looking at the industry, understanding who is doing what,  the way they were doing it, the different incentives to each party, the different structural legacy systems they’re stuck with and trying to invent a solution and that’s what we’ve built over the past five years.

So in summary, what we’ve done is what was seemingly impossible at the start which is build the entire system end-to-end which is the case management, the search algorithm, the API, the transaction monitoring, the payment analytics, the [inaudible] resolution and database. All of these things in a combined holistic system, we think, are now able to make a real dent in the challenge which has never been possible beforehand

Peter: So not only that, you’ve got to not just build it, you’ve got to interface with existing systems which, I imagine are all very different. I mean, obviously, you’ve got some of the core banking processes, there’ll be some similarities, but how are you able to interface with everyone from…you know, you’ve got a legacy bank running COBOL to a fintech company that’s five years old or less and running some of the latest Python technology, how do you manage both?

Charlie: So I think what people don’t often understand is that an API is the most important interface of all like while it’s very easy to build an astounding human interface in terms of the kind of web interface, in terms of catering to developers and the industrial process of managing millions of searches and the ability to get very high performance results from the API, being able to design that and have all the functionality around that, I think that’s a huge differentiator in terms of the way it’s constructed and the way it’s built, the way it’s maintained, the way it’s interfaced. And so we’ve invested huge amounts of resources into building what we think is the best API in the world and so all the clients we have integrate with the API.

Peter: So it doesn’t matter whether they’re running COBOL or whether they’re running Python, they will integrate…they will be able to get the same results from interfacing with you, regardless?

Charlie: Exactly, yes, exactly.

Peter: Okay, okay. So I’m curious then…you know, before you guys came along, what sort of compliance…I mean, banks…as you said they’ve invested billions of dollars into this, what have they been doing and why is it so inadequate?

Charlie: So a key dimension of what we’re doing is around all the data so what you have now is or in the time before we arrived was you had three or four main data providers and these data providers what they do is they really pride themselves on having 500 analysts and all these analysts kind of came from editorial backgrounds and they try and track…of the 7 billion people, they try and track and then maintain a database of say 5 million people they thought were high risk, right, so sanctions, political exposure, adverse media.

So what that means is if you have 500 analysts and they spend a few minutes every four years, they can spend therefore 10 minutes on each person every four years which means that the breadth and depth of the data is completely not very helpful.

Peter: (laughs) Right.

Charlie: Whereas for me, starting off from scratch, I felt the only way to solve that was to do it via an algorithm. Of course, when you start building these algorithms, at the start they aren’t particularly effective, you have to invest huge amounts of resources and time to get them up to the stage where they’re better and more effective than the human researchers.

If you can do that then that’s a huge inflection point and there are all sorts of other things you can do once that foundation infrastructure is built. So and then in terms of once you have that data then you can have the fusion between the data and the API and the search algorithm and the case management and so, architecturally, what you have is a step change in terms of what’s possible. So by rebuilding everything from scratch in-house in this kind of holistic system, we think we’re able to get much better results.

Peter: Okay, so I want to actually just…if you could just talk us through an example how it works in practice. So someone comes along to a bank, for example, they’ve got $100,000 that they want to deposit or they want to invest or whatever, the bank says, okay, we need to do our KYC and AML type test. So this person enters in a whole bunch of data, then they send it to you through the API, what is it that you do exactly and what do you send bank to them?

Charlie: So what we send back is profiles of people that we think match the entity that they’re trying to onboard and details of that person. So it could be Peter Renton, he’s involved in human trafficking, he launched an attack on Al Qaeda in (inaudible), all of these things about this person and they’ll say, okay, actually, different date of birth, different Peter Renton and therefore we’re going to remediate that profile as not being the correct match. The next match could be the correct Peter Renton in which case probably you don’t want to onboard him because he is a super high risk.

Peter: Right, okay. So is the output from your API really just a binary yes/no decision, or do you send back like a much more rich kind of dataset and then the people at the other side make the yes/no decision?

Charlie: What we send back is an entity profile so it could be a person or a company and they have to decide is that person or company the same as the one that they’re trying to onboard and they’re confronted with currently. So we don’t make the choices, it’s up to the lending company themselves to decide whether or not they want this person or company as a client.

Peter: Right, right, okay.

Charlie: The challenge becomes…if you’re on-boarding a million clients every year and if you already have a million clients that are already clients…because at any given point, a few of those could become terrorists, they could become money launderers, they could become subject to things like cuckoo smurfing, they could be taken over by criminal gangs, so you need to know when you’re maintaining your client base which of them become high risk…

Peter: Right.

Charlie: …because that could land you in jail and at the same time when you’re trying to grow the business and make money, you have this hidden risk which you’re not aware of. So it isn’t just the entity base risk profile, it’s also the kind of the transactional behavioral analysis.

So let’s say you have two different companies who are transacting with each other as counterparts via a system then you have to be able to understand that risk as well or if they start sending money to Iran, or they start transacting in Iraqi Dinars so there’s both the entity risk and then there’s the ongoing monitoring risk and then there’s the behavioral risk as well. So we’re trying to help companies understand all those different attack vectors.

Peter: Right. So I imagine you’ve got to be like Google in some ways, you’ve got to go out and just search the Internet for all these kinds of…I imagine you’ve got some pretty extensive different data sources. Someone may not be a money launderer today, they might be a completely law abiding citizen, they wouldn’t raise any red flags, and something happens and they get recruited by a terrorist organization or what have you and suddenly, they become one.

So how are you building…are you just going out…I imagine it’s all automated, but you’re just going out, your services are going out scouring the globe for new cases of people who’ve become bad actors?

Charlie: What you have absolutely is this trend whereby there’s this explosion of information and it could be in Swahili, it could be in Afghan, it could be in Russian and then you have…it could be Vladimir Putine in French, it could be Vladimir Putin in Cyrillic so you have all of these different people, all of these different sources, billions upon billions of new webpages, social media feeds, all of these different risks that suddenly appear and you have clients supplying to you from all over the world, from shell companies and so if you only have a team of say 50 people, how do you manage this enormous risk, right.

So what we’re trying to do is make this as efficient as possible. I think it’s going to be difficult to completely eliminate the risk, but the more data sources and the more ability to make simple what is inherently complex then the easier and lower risk it will be for different lending companies and the more likely it is that they can stay in business.

Peter: Sure, so I mean, there’s been a lot of talk this year…I’ve read many articles about like the trouble, I think it was in Estonia with the money laundering, I’m curious to get…what region, what parts of the world have the worst or have the most financial crime?

Charlie: So we have clients now in 45 countries and what’s fascinating to me like traveling around is how each different jurisdiction is completely different in terms of the risks exposed. So in our Singapore office, for instance, a big risk is the Chinese abscond, the Skynet risk, those people who have been tracked by the Chinese government and then go to Indonesia or Malaysia, so there’s a risk there.

In the Baltics we have a team focused on Latvia, Lithuania, Estonia and so the risk there is obviously all the Russian money coming in and then in South America it’s going to be different forms of drug gangs and so those aren’t necessarily siloed. So given the intensification of globalization, it could be the Mexican drug gang is working in league with a Russian money launderer who is then linked to a Chinese drug cartel…

Peter: Right.

Charlie: So I think as crime becomes more transnational and becomes more complex, the risks and consequences of criminal finances become all the more extreme. So it’s everywhere, it’s hyper local, but also global at the same time.

Peter: Right, right. So what geographies do you operate in? I know in talking to you today you’re in New York, but you’re obviously not American, I know you’re British, but what geographies do you actually operate in today?

Charlie: So we have three global hubs so New York, London and Singapore and the teams are kind of based out of there.

Peter: Okay, okay. You said you’ve got clients in 45 countries so I guess whatever country is closest that’s where…you’re managing everything out of those three offices.

Charlie: In terms of offering the best support and also in terms of understanding the local risks and also the local name matching requirements, the kind of languages, the data sources, each different regulation and regulator has different nuances which we have to understand and to operate in one country, you have to operate in the whole world because each local country will often need screening for global requirements. So it’s not good enough having local coverage, you have to be completely global from day one.

Peter: Wow! That’s a decent sized barrier to entry, I imagine, for a lot of people, a lot of companies.

Charlie: I think the barriers to entry in this business are I think huge and only getting larger in terms of reputation, in terms of adoption, in terms of data coverage, in terms of efficiency so I think clients are becoming more and more demanding as the risks and consequences become tougher and tougher.

That was partly why I raised this $30 million dollars from Index in December is because right now, we’re roughly 200 people, but I think we want to take our tech team and development team…like try and double that this year, if we can. This year there’s a range of things we need to do and a sheer number of breaches and data sources and efficiency and effectiveness to the algorithms that clients demand is just only going to increase as time goes on.

Peter: Right, right. We haven’t talked about it yet, but I imagine this is a big part of your technology and that is artificial intelligence, machine learning. You’re dealing with massive data sets so how are you using AI/ML in your business to help companies with all of this monitoring?

Charlie: So for me, the whole AI thing is kind of very overhyped, but I think if you really..

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We share the results of the public online lenders

Every quarter we check in on the public online lenders. This includes LendingClub, OnDeck and GreenSky. LendingClub and Greensky reported today and we’ll review some general highlights from OnDeck who reported last week. 

LendingClub rounded out 2018 originating the most loans in the company’s history at $10.9 billion. With their Q1 2019 results, the company is off to a great start in 2019.  Originations were $2.7 billion, up 18% year over year. The company reported that application growth was 31% over the same period.

Net revenues came in above high end guidance of $172 million at $174.4 million for the quarter, up 15% year over year. GAAP Consolidated Net Loss was $(19.9) million, compared to $(31.2) million in Q1 2018. Finally, the company delivered adjusted EBITDA of $22.6, up 47% year over year and well above their projections of $13-$18 million. LendingClub is on track to become adjusted net income profitable over the second half of 2019.

As always, it’s always interesting to look at the investor mix over time.

There were a few interesting news items from the quarter as well as some comments from CEO Scott Sanborn on the earnings call. The most significant news was that the company announced a shift to the way they serve small businesses. LendingClub is no longer originating small business loans themselves and is instead opting for a partnership approach. The co-branded offering is made possible by Funding Circle and Opportunity Fund. In addition, small business loans will no longer be funded by LendingClub investors.

Beyond the small business operation, Sanborn discussed that the company is working towards their vision of not just being a “lending club” but a financial health club. To date we’ve seen little progress in realizing this vision, but clearly they want to do more. They envision moving from simply a product focus to a platform focus in areas where it makes sense. The decision to make the change in their small business operation is the first example of this.

In the personal loan space LendingClub is also looking to offer a unique opportunity for their investors. The reality today is that the company receives 40,000 applications a day but only a small fraction of these borrowers get approved and subsequently take a loan. LendingClub realizes that there is a lot of expertise in their broad investor base and they may give investors the opportunity to provide their custom models to underwrite a subset of these applicants. This would also result in higher satisfaction on the borrower side as more borrowers would be approved. In my opinion this gets back to LendingClub’s original promise of being a true marketplace, offering a wide range of loans to every type of borrower.

Interestingly, Sanborn commented on the opportunity of a bank charter, something that would be hugely beneficial for a company seeking to offer a wider range of products. Other potential benefits include margin improvement, more resilient funding and giving the company more regulatory clarity. While this would certainly change many dynamics in the business, Sanborn noted that this is a massive undertaking that will come with significant time and costs and they will update investors as their thinking evolves.

LendingClub is also very much focused on cutting costs as part of their simplification program. Last week Bloomberg published a piece on LendingClub’s plans to move employees to Utah from their expensive San Francisco office. The cost savings are significant as they decrease their footprint by around 41% in the city as leases expire and they sublease their open space. Below is LendingClub’s Q2 2019 and full year guidance.

GreenSky Q1 2019 Earnings

In Q1 2019 GreenSky increased transaction volume on the platform 20% to $1.2 billion. They also grew revenue 22% to $103.7 million form the prior year period. GAAP Net Income in Q1 2019 was $7.4 million. The company had aggregate commitments of $11.8 billion from nine bank partners of which $4.5 billion remain unused. The company ended the quarter with $268 million in cash.

Last year we reported on the potential of the company’s partnership with American Express. GreenSky shared that since the alliance launched 3,600 merchants have been referred to GreenSky for enrollment evaluation. In February 2019, the program was extended to include elective healthcare.

Below is a look at how their merchant network has grown over time and the verticals they currently serve.

GreenSky also noted new relationships with a field services software company, a dental practice management software company and an HVAC home services software enterprise. In all of these relationships, the GreenSky financing platform is integrated into the software. These types of relationships and the market GreenSky focuses on is what makes them different from many of the fintech companies around today.

In Q1 2019 GreenSky also repurchased 4.3 million shares at a cost of $50.9 million which is part of their $150 million share repurchase program. Since then the company has purchased more shares and in total has repurchased 9.1 million shares.

OnDeck Q1 2019 Earnings

OnDeck reported Q1 2019 earnings last week. Originations fell for the quarter to $636 million compared to $658 million for the previous quarter. This was attributed to OnDeck tightening their credit box during the quarter. The company shared that their line of credit product reached an all time high of $150 million for the quarter. Further information on their quarter is available in their press release.

The post LendingClub, GreenSky and OnDeck Q1 2019 Earnings Results appeared first on Lend Academy.

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During the week I share the latest marketplace lending and fintech news on Twitter as it happens. Then every Saturday I take the most interesting news items and blog posts from the past week and share them here.

Mark Carney vows to reinvent Bank of England for ‘fourth industrial revolution’ from Yahoo Finance UK – At the start of UK fintech week the Governor of the Bank of England said that they need to reinvent the central bank to make it fit for the “new economy” of the “Fourth Industrial Revolution”.

College Students Abandon Student Loans, Offer Share Of Their Future Income Instead from deBanked – So far this year I have read more articles on income share agreements than ever before. Maybe the idea is finally getting traction. Certainly something needs to be done about the student loan crisis.

Exclusive: Digital banks have won over half of Brits, but women are being left behind from AltFi – Interesting survey out this week from AltFi showing the gender gap in fintech when it comes to brand awareness of the leading players.

Revolut says it’s cleaning up its act. Evidence suggests otherwise from Wired – Even though Revolut CEO Nikolay Storonsky has said his company is different today than it was 12-18 months ago the negative press keeps coming.

Chancellor of the Exchequer Philip Hammond: “The UK is the perfect location for Fintech to thrive, even as we leave the European Union” from Crowdfund Insider – I am in the UK this week for their fintech week and was at Innovate Finance yesterday to hear the chancellor’s support for the industry. Good summary from Crowdfund Insider. Would love to have similar support from the highest levels of government in the US.

How will UK FinTech fare in the future? from Chris Skinner’s Blog – Here is a good summary of a panel chaired by Chris Skinner on the future of UK fintech at Innovate Finance.

Inside Varo Money’s three-year quest for a bank charter from American Banker – Interesting look inside the long process of Varo’s bank charter application.

International P2P Lending Volumes April 2019 from P2P-Banking – The international p2p lending origination numbers for April are out with many platforms seeing good traction.

Apple Card doesn’t ‘reinvent the wheel,’ but it does cut friction from PaymentsSource – What is really new and different about the new Apple Card from Goldman Sachs.

Facebook Building Cryptocurrency-Based Payments System from The Wall Street Journal – This is the most innovative fintech initiative yet from the FAANG companies and could change the world of payments.

Fintechs want to become nationwide lenders, but they just hit a major roadblock from MarketWatch – In the worst news of the week for fintech a federal judge rules that the NYDFS lawsuit against the OCC on the fintech charter can proceed.

Unicorn Challenger Bank Chime CEO Chris Britt Chats Up Speedy Deposits from Crowdfund Insider – Chime CEO Chris Britt was on CNBC this week talking up how Chime customers get their payday two days earlier than anyone else.

From the Lend Academy Forum

The Lend Academy forum is where investors go to discuss p2p lending. Below are some topics that were being discussed this week.

STRATA Public Unsecured Notes balance not equal LC balance – An investor shares an issue related to closing out a LendingClub IRA.

LC Bot Performance Info – A forum member shares information about a bot they run that is purchasing loans on LendingClub’s secondary market.

Cash Parking – A popular thread on where the best places are to park cash.

The post Marketplace Lending News Roundup – May 4, 2019 appeared first on Lend Academy.

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Lend Academy - Teaching the world about .. by Peter Renton, Peter Renton: Peer To.. - 2w ago

It is one of the great challenges of our time. Despite low unemployment and a booming economy there is still a large sector of the population that is struggling financially. As I wrote earlier this week there is a new breed of entrepreneurs attacking this problem but they need significant amounts of capital to get off the ground.

Our next guest on the Lend Academy Podcast is helping to provide some of that capital. Emmalyn Shaw is one of the managing partners at Flourish, a rebrand of the venture arm of Omidyar Network. Flourish is an evergreen venture fund that invests in entrepreneurs whose innovations help people achieve financial health and prosperity.

In this podcast you will learn:

  • Why the Omidyar Network decided to create a new brand, Flourish.
  • How their mission is different to the overall Omidyar mission.
  • The common theme within Flourish portfolio companies.
  • Highlighting some of the companies that are in their portfolio.
  • How fintech entrepreneurs can get on Emmalyn’s radar.
  • The stage of round they typically invest in.
  • The geographies they are focused on today.
  • Why there is more interest and innovation in financial inclusion than ever before.
  • What Emmalyn thinks about fintech valuations today.
  • What it will take to make real improvements in financial health in this country.
  • The kind of work they will be supporting with the 15% of their fund that is grant money.
  • How involved is Pierre Omidyar and what he is like to work with.
  • The plans for Flourish over the next 12 months.

This episode of the Lend Academy Podcast is sponsored by LendIt Fintech Europe 2019, Europe’s leading event for innovation in financial services.

Download a PDF of the transcription of Podcast 197 – Emmalyn Shaw.

Click to Read Podcast Transcription (Full Text Version) Below


Welcome to the Lend Academy Podcast, Episode No. 197. This is your host, Peter Renton, Founder of Lend Academy and Co-Founder of the LendIt Fintech Conference.


Today’s show is sponsored by LendIt Fintech Europe 2019, Europe’s leading event for innovation in financial services. It’s coming up on the 26th and 27th of September in London at the Business Design Centre. We’ve recently opened registration as well as speaker applications. You can find out more by going to lendit.com/europe

Peter Renton: Today on the show, I’m delighted to welcome Emmalyn Shaw, she is the Managing Partner at Flourish. Now Flourish is a new brand, but it is an existing organization that has quite some history. It is being spun out of the Omidyar Network and it already has, even though it’s a new brand, it has already 40 portfolio companies, all of which received investments from the Omidyar Network.

Anyway, I wanted to get Emmalyn on the show to talk about Flourish and why they decided to make this move at this time and start a new brand and what are some of the things that they’re looking for and adding to their portfolio, how Emmalyn views the state of fintech today and where are the valuations frothy and where is there still value and what does it take to get on her radar. 

We also talk about sort of the research that they continue to fund and I also ask her about working with Pierre Omidyar. It was a fascinating interview, I hope you enjoy the show.

Welcome to the podcast, Emmalyn!

Emmalyn Shaw: Thank you so much for having me.

Peter: Okay, so I like to get these things started by giving the listeners a little bit of background about yourself and what you’ve done in your career to date.

Emmalyn: Wonderful, well thank you so much. My name is Emmalyn Shaw, I co-manage Flourish and I lead the US investments, specifically focused on promoting financial health and economic opportunity. I have about 20 years of investing experience in technology, both early stage and growth, across a number of different sectors and really pride myself in working very closely with entrepreneurs and helping them scale businesses.

Prior to that, I was in investment banking and also worked at a fintech so had quite a long arc of exposure around technology and really had a passion for wanting to marry real financial business models with impact.

I attended Wharton Business School, MBA from Berkeley, summa cum laude, Phi Beta Kappa, my academic experience, but really wanted to take both the academic training, but more importantly, the investment and technology exposure to apply towards what we really think about as, you know, an innovative way of investing in fintech companies.

Peter: Sure, so I want to talk about the thinking behind sort of this rebrand or spin-off. You know, most of the listeners will have heard of the Omidyar Network, particularly those in the impact investing space, but what was the decision…why decide to spin-off into a new entity with a new name? What was the thinking behind that?

Emmalyn: As you’re familiar with, you know, Omidyar has been around in impact investing broadly and over the past ten years had spent quite a bit of time focused specifically on at that time what was called financial inclusion and the effort there and we built an incredible portfolio.

It was really an opportunity to then operate in this more entrepreneurial setting, in a skunkworks setting, to focus and double down on not just financial inclusion, but financial health broadly and providing a separate name and a fund gave us that opportunity to be very clear in our narrative, to be able to be very responsive and skunkworks-like in a dedicated $500 million fund, $200 million of which comes from our existing portfolio of 40 portfolio companies and ten ecosystem investments and $300 million which was new capital to be deployed against this mission of achieving financial health on a global basis.

Peter: Okay, so then how is that different to the mission…Omidyar Network’s overall mission, I mean, just maybe tease that out a little bit for us.

Emmalyn: Yes, I think historically, Omidyar is known and they proved this model of impact investing and was really focused on a dual checkbook of providing for-profit businesses with equity dollars as well as nonprofit through grants. I think the distinction that we were trying to provide for Flourish is to still use a portion of both equity as well as grants towards this mission, but much more specific to financial services.

So in this case, where 85% of our equity dollars go towards for-profit companies and 15% go towards really ecosystem investing around supporting everything from entities like CFSI who provide real rich research against the health of the financial consumer today as well as partnering with folks in creating regulatory sandbox technology in order for us to really understand how technology can change and actually improve regulatory decisions. So I think this breakdown of 85/15 is different than I would characterize the traditional Omidyar Network use of for-profit/non-profit capital.

Peter: Okay, okay, that makes sense. So let’s then talk about the portfolio. I’m on your website right now and you’ve got, which I will obviously link to in the show notes, but you have an interesting mix. There’s certainly a lot of pretty big names in here now, well known names, anyway, I should say, so maybe you could just…I don’t want you to run through every single one, but just maybe takes us through some of the highlights of the portfolio companies you have right now.

Emmalyn: Yes, thank you, I appreciate you recognizing our portfolio. We’re very excited about the importance of the impact that they’ve made broadly on the sector. You know, given my focus specifically on the US and given your focus as well in terms of kind of the areas that you specialize in, I would say if you look specifically at that market, we focus again on the 70% of US Americans who live paycheck to paycheck, majority of whom where a $500 emergency would put them in a very dangerous position as it relates to their own financial position and economic health.

As a result, we’ve really thought about how do we invest in technology that either allows folks to earn more income in order to change that dynamic to either spend differently, manage expenses, access credit differently and improve savings and I think along those lines there have been a number of companies that embody that mission.

The first of which would be Chime, you know, as a challenger bank, one of the most successful to date and certainly the largest in the US. They’ve really provided what we characterize as a win-win for consumers in that they are leveraging the rails, they are a digital only bank, there are no fees for the consumer, they’re aligned in terms of as a consumer spends and engages with their direct deposit account Chime also is able to generate revenue so they’re very aligned in terms of the fees and how they make money and I believe that that has been instrumental in terms of the trust that they have engendered and the growth rate that they have experienced. They’ve also as a result of their offering, been able to realize and motivate some actual savings and be able to measure that savings and to us that’s a real embodiment of a very commercial business from a financial services perspective that also creates massive impact and is able to address a market that honestly typically does not have very rich financial services, right the [inaudible] market.

Many of whom don’t have a high enough income stream to justify being part of a large bank and if they did, they’re often…the fees are so difficult for them, principally around overdraft fees and the like. They’re not able to really take advantage of a full financial banking solution so this has really been transformative on a number of fronts.

Peter: Right.

Emmalyn: Steady is another one that we’re very excited about. They really are providing what we characterize as the income generation side of the house. They are providing a marketplace for the hourly worker, whether it be gig or otherwise, and to provide a portfolio of work. I think in a world of 1099 where that market is only growing substantially, it’s a real opportunity for folks to choose among the best type of job opportunity for this consumer, and ultimately over time provides necessary upscaling to allow them to actually generate more hourly work at a higher pay than they would otherwise have. So there’s been a real obvious ROI in a short period of time that they’ve been able to identify some true savings.

Again, we’re very in the early stages of managing the closed loop of incremental earnings, but in this very early stage have already been able to see folks earn upwards of a $167 and then some within a month of joining Steady and getting on that platform and we’re still in the very early stages of really increasing that revenue opportunity over time so very excited about what we’re seeing there.

Peter: Right.

Emmalyn: And then I would say the last which is also an interesting example of a very commercial opportunity, but really impactful is really around on the technology innovation with a company called Propel that’s actually providing technology services and ultimately, financial services for the food stamp recipient.

In that case, again, really meeting a consumer where their greatest need is, it’s providing a very easy way for them to check their food stamp levels and then ultimately to be able to find ways to save, manage how they’re using that food stamp distribution and then ultimately provide very rich financial services on the backend, very similar to kind of Green Dot-esque that we’re familiar with in other markets.

I think what we’re seeing there is, again, across all three of these companies, because the need is so important, the customer acquisition costs are actually quite impressive and really afford for powerful unit economics and ultimately scale for the business.

Peter: Right.

Emmalyn: So those are just three that I’d highlight that I’m particularly excited about, of which there are many.

Peter: Sure, sure, there are many others that I know are also fantastic companies in your portfolio. So what about for new opportunities? I’m sure you’re getting a lot that come across your desk, but how does someone, they’re listening to this and they think, well, I fit in the wheelhouse for Flourish, what’s the best way for them to get on your radar?

Emmalyn: As you know, we look for transformative ideas and we look for ideas that are principally focused on improving financial health. We try to be everywhere that consumers, specifically if there’s any conferences that are around financial heath, we try to be front and center to make sure folks are aware of our mandate and what we care about.

We’ve also leveraged our rich, very rich and deep source of leads through our own investments and CEOs and management teams and that has been a really powerful way to both find new mission-based entrepreneurs that share our objectives.

We also believe that at the end of the day, we may not actually always be the right fit as an investor for some of these entrepreneurs, but we want to serve and leverage our broad ecosystem, both within our own fund, but in Omidyar at large to make sure we help continue to foster the advancement.

I think what we’re finding is more broadly across financial services, people are coming to us, 80% of which are very much in our sweet spot, 20% that may not be…but we’re really going out of our way to continue to support in order to continue to prime the pump and make sure that they are aware of how we can provide value over time. Those tenets have been particularly effective, but we will continue to be very vocal in terms of this mandate and I think that has drawn a number of interesting companies our way.

Peter: Right, so your focus really is on early stage rounds or what sort of stage do you invest in?

Emmalyn: Yes, our principal focus is seed and Series A and we will entertain opportunistic B’s, but again, I think the most important…we are fortunate that we have a single LP in Pierre and Pam Omidyar, they are very patient capital. We don’t, unlike other funds, having been part of other funds in my career, we don’t have ownership restrictions and so it’s really, our focus is making sure we’re going to back the right types of investments that satisfy both our impact mission and our financial return expectations and because of that, we’re able to play across a continuum.

Peter: Got it, got it. So I know that…you said your particular geographic focus is the US, but obviously, you look at your portfolio of companies and they’re from many different geographies. At Flourish, what are the geographies you’re operating in?

Emmalyn: Yes, thank you for asking, so our fund, I would say, our emerging markets are India, Africa, Latin America and other parts of Southeast Asia and then the other half of our fund is really focused on the US.

Peter: Okay, got it. So one thing that I’d like to ask you about is it seems to me like…for example, we just came off LendIt a couple of weeks ago and I know you spoke there, I look at the interest in financial inclusion…we’ve had a financial inclusion track now for three years at LendIt and every year it gets more crowded and it’s more popular and it feels like when you’re just reading the press there’s much more talk now about financial health and financial inclusion, in general. I’d be curious to get your take on it. Why do you think it’s becoming a more important part of the conversation in fintech these days?

Emmalyn: You know, I would say that…as I mentioned earlier, our focus originally was on financial inclusion and it was really….with a focus in emerging markets, in particular, and I would say that while it still remains a focus, there has been some success in terms of including on a emerging market basis, more. I think that progress has been applauded by many.

Is it over? By no means, is there still very much a need and effort to continue to include the  financial consumer, absolutely, but I think what we’re finding, and this is a global phenomenon, is they may be included, they need to be provided rich services, but within that construct they’re actually failing, meaning, they’re barely able to sustain.

In the US, in particular again as I mentioned before, there’s still…70% of US Americans are living paycheck to paycheck so this is very much a middle class problem as well. And so then the question becomes, is it really an inclusion issue or is it a health issue and what do we need to do differently from the financial services perspective to make sure people are thriving, right, that folks aren’t over extended and that they can actually take advantage of these financial services in a meaningful way?

So I think that’s what’s driving so much innovation from maybe what we’d characterize as commercial entrepreneurs because I think they recognize that, you know, in the absence, innovating in financial services at the expense of and not ultimately driving financial health doesn’t end up being a win-win for anyone, let alone being able to scale a viable commercial business.

Peter: Right.

Emmalyn: And so we’re finding there a huge shift towards understanding that base and really providing them the means to become more financially healthy while being able to engage in rich financial services and transactions and I think that’s what’s driving a lot of that, the focus more broadly and not just in the US, but globally.

Peter: Right, I completely agree and I feel like we’re at this…it’s an interesting time right now, there’s becoming more awareness, I think, in the general population about…there’s a call for more transparency, the popularity of companies like Chime and Stash and many others that are getting really serious, serious traction…people don’t want to pay fees, they want something that’s simple, that is a win for them and not just a win for the financial institution, it’s a really interesting inflection point. I think the younger generation are driving this and I think there’s so much entrepreneurial activity happening that it’s quite an exciting time.

But I want to move on and actually ask a related question to this. You know, we’ve been tracking all the major funding rounds in fintech globally, since the beginning of the year, we’ve been tracking it very closely and obviously, one of your portfolio companies, Chime, had a huge round. There are many others that have had massive rounds at unicorn status, as far as the valuations go, how do you feel about that as far as…do you think the valuations in fintech are getting a little bit ahead of themselves or do you feel like there’s still good value if you know where to look?

Emmalyn: Yeah, I think we’re still having, again, I’ve been in venture for 20 years now, I think we’re in the very front end of parts of segments being somewhat more frothy than others. I think, broadly across fintech there’s still a lot of opportunities, particularly around financial health where they’re very much in line and you’re seeing kind of more traditional metrics being applied.

There are frothy areas, for sure, you’re seeing that in the bitcoin, the crypto currency world is certainly seeing that to some extent, one would argue the challenger banks. I think what we’re noticing and what is symptomatic at least of the challenger banks in my mind is a couple of things.

You mentioned earlier about where we’re seeing millennials go and this need for kind of alignment. There’s a massive distrust among traditional financial institutions, in particular among incumbents, especially among the millennial generation, but I think more broadly and this is a result of some of the hidden fees, some of the uncertainty around a lack of transparency, shall we say, for current financial services.

I think as a result it’s such massive market and the idea of really disrupting a market like that, I think, is incredibly compelling and part of what you’re seeing is a frothiness built into what could that really look like if there’s true disruption in that market. Now you could say, well, yeah, but you look at the numbers and the penetration is pretty low so does that really warrant these unicorn levels?

I think there’s some validity there. I will say though, like anything, once you’re getting scale and once you have real data, especially with the digital whales, the upside is quite high and the ability to then to kind of scale and provide really meaningful rich services and de minimis churn, I think, ends up becoming a very compelling value proposition, the valuations of which become highly justified.

So I think we’re kind of in that precipice where it’s certainly frothy, but I’m not losing sleep at this point. I feel like in an industry that needs to be disrupted there’s some celebration among the very few who have been able to show some real penetration thus far.

Peter: Right, right, for sure. So, you know, one of the things that…I had Jennifer Tescher on a few months ago and I asked her this same question and I’d be curious to get your take. There’s a lot of companies that are out there doing great things and I think there’s…I mean, a lot are still sub-scale, but some are getting some serious scale, but it feels like all of these advances in fintech have not really impacted the overall financial well-being of the population in this country.

It feels like we’re still about where we were five or ten years ago. How are we going to change that? I mean, are you optimistic about the potential impact that some of these companies can really have where suddenly, it’s not 70% of the population that can’t handle a medical emergency, it’s 30% of the population. Are we ever going to get there, or how do you think we..

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