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LendingClub earnings beat Q1 expectations

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After a successful first quarter, LendingClub posted earnings of $.39 a share on revenue of $289.5 million, beating analysts’ expectations.

Announced right after the market closed on Wednesday, revenue was 174% year-over-year, outpacing originations growth of 117%.

“We grew our member base beyond four million to serve more everyday Americans looking to refinance out of higher-cost credit card debt, save more of what they earn and find a better way to the bank,” CEO Scott Sanborn said.

“With another quarter of record results, we are demonstrating the power of our loyal customers, significant data advantage, and differentiated marketplace bank model.”

Four million members strong

LendingClub earnings
CEO Scott Sanborn

The firm had recently announced members grew past the four million mark, a type of preview to the close of a successful quarter.

Along with the news, the firm reported total loans outside of PPP grew 23% from Dec. 31, 2021, and 116% from March 31, 2021.

Also, the bank’s deposits of $4 billion were up 27% from Dec. 31, 2021, and 68% from March 31, 2021, supporting the growth of loans.

Along with the release, the bank shared insght into the first quarter of 2022 with a positive outlook on the year:

  • Recurring stream of net interest income grew 20% sequentially to $99.7 million and increased 439% year-over-year.
  • Marketplace revenue of $180.0 million grew 6% sequentially and 120% year-over-year, reflecting growth in marketplace originations and strong platform investor demand.
  • Provision for credit losses was $52.5 million, reflecting a 23% growth in loans held for investment (excluding PPP) from Dec. 31, 2021. The credit quality of our retained portfolio remained strong given the credit profile of our borrowers with an average FICO of 727.
  • Net income of $40.8 million rose 40% sequentially and by $87.9 million year-over-year.

Most analysts were either neutral on the stock or upgraded to a buy rating over the last quarter. In total, Lending Club was expected to post $0.24-$.26 a share on revenue of $262.07 million.

“We believe we are well-positioned to execute our strategy and outperform the competition while helping our members effectively navigate the ever-changing economic landscape,” Sanborn said.

The post LendingClub earnings beat Q1 expectations appeared first on LendIt Fintech News.


Women in Fintech Demolish Glass Ceiling

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[Editor’s note: This is a guest post from Mark Lusky of Mark Lusky Communications, a writing and marketing communications firm, operating since 1982. He specializes in ghostwriting expert advice articles, blogposts and other bylined content for clients, along with writing e-books, whitepapers, case studies, websites, opinion pieces and other communiques—incorporating marketing skills and perspectives acquired as a regional marketing director for Ringling Bros. and Barnum & Bailey Circus. He will be attending LendIt in San Francisco this April.]

LendIt Fintech’s Fintech Women of the Year 2019 award finalists champion the causes of diversity, equality and education—and shout it from the rooftops. In the process, they’re demolishing glass ceilings for women and other diversity-challenged groups.

They are dedicated to achieving gender, ethnic and racial equality. And they are educating a variety of audiences— including borrowers, investors and the Fintech industry—about ways to grow and thrive by becoming savvier and open to all people.

These finalists are changing not just their world—but the whole world.

Promote diversity, respect, collaboration
Valerie Kay, Chief Capital Officer at LendingClub, is responsible for overseeing LendingClub’s Investor Group. She addresses the need for diversity, inclusion, mutual respect and collaboration. She emphasizes the vital importance of diversity to drive better workplaces, happier customers and more profits.

Kay notes, “We as executives have a responsibility to create opportunities that will raise the next generation of leaders – this includes creating diverse working environments where our employees feel that their voices matter. Diversity is more than gender – it’s about diversity of ethnicity, background, experiences, sexual orientation, and more. At LendingClub, we believe that bringing different perspectives together, regardless of gender, in an environment of mutual respect and collaboration delivers better outcomes for our customers. We believe that this drives innovation and success. My advice to companies: start with the problem you’re solving. Give opportunities for varying voices and actually listen. Don’t let your bias guide your decisions. Elevate the great ideas that help your target audience.”

Andrea Gellert, Chief Revenue Officer and Chief Marketing Officer of online small business lender OnDeck, says she sees good progress being made by Fintechs in finding female candidates at all levels including C-Suite and board positions. She points out, “There are more female founders than there used to be. We are moving at a much more accelerated pace than previous industries did in terms of female management.”

Deeds drive the bus toward equality
For Jennifer Tescher and Yihan Fang, accomplishments and setting an example help make the case for viewing Fintech’s women as empowering role models for others.

Tescher, Founder, President and CEO of the Center for Financial Services Innovation (CFSI), is an authority on consumer financial health. Through her organization’s guidance and education, Tescher has educated the financial services community to improve their products and services to underserved consumers, and provided insights, direction and education for these consumers to become better borrowers.

She points out, “We have built a financial health framework and measurement methodology, and today dozens of companies are working with us to measure the financial health of their customers and employees and use the learnings to inform strategy, product design and customer experience. Five years ago, we launched the Financial Solutions Lab with a $25 million partnership with JPMorgan Chase. The Lab invests in early-stage fintech companies that are building solutions to pressing financial health challenges, like volatile incomes, lack of emergency savings, managing medical expenses and many others.”

Fang, CEO of Yirendai, has been a major force in entrenching Fintech in China. The company also focuses on the underserved, in this case investors and individual borrowers. The first publicly listed Fintech company from China, Yirendai is described in Crunchbase as: “…the consumer finance arm of Chinese peer-to-peer (P2P) lender CreditEase. It is focused on providing an effective solution to address largely underserved investor and individual borrower demand in China through an online platform that automates key aspects of its operations to efficiently match borrowers with investors and execute loan transactions.”

Her stewardship has been the catalyst for developing a top-notch team in financial services and technology. She notes that there was “no Fintech when I started in 2011. We built a team and trained them, [making Fintech] a habit for consumers in China.”

“Give a [wo]man a fish…
…and you feed [her] for a day; teach a [wo]man to fish and you feed [her] for a lifetime.” This is adapted from the widely-known quote by the philosopher Maimonides.

American Banker describes Luvleen Sidhu as the “Co-Founder, President and Chief Strategy Officer at BankMobile, a completely digital bank, offering a checking and savings account aimed at helping the underbanked, millennials and middle-income Americans have an affordable, effortless and financially empowering banking experience.”

In addition to her “day job,” Sidhu also mentors Fintech startups and facilitates establishment of computer centers in India to educate rural women.

She teaches, she mentors, she helps people help themselves. A powerful force in Fintech, she cites ability to pivot quickly to create new opportunities and open, transparent and safe leadership/management meetings as major achievements. She points out that Fintech can help drive opportunities for women, including helping them finance their businesses. A BankMobile vision is to help fund women entrepreneurs along with other “minorities.”

There’s always a “but”
Acknowledging the advancements and accolades for these finalists, however, shares the spotlight with the sobering reality that there is still a long way to go.

Notes Tescher, “Fintech is challenged by the fact that women are underrepresented in both ‘fin’ and ‘tech.’ Having said that, parity for women is not a sectoral problem; it’s a structural and cultural problem across sectors. Consider the fact that despite all of the women who were elected to Congress last year, women still only make up 25% of that body. Last time I checked, women account for about half of the population.”

Adds Gellert, “The reality is that as long as we have to discuss gender it means that we aren’t where we want to be yet. We still have a gap that needs bridging in terms of both numbers of women and their compensation.”

Weighing in on women and men in Fintech
Fintech needs to evolve so that women can be viewed for contributions without tying them to gender. Kay says it’s “extremely important…Of course the male-dominated fintech industry should evolve and it will when more women are in leadership positions…For women to be seen for their contributions beyond their gender, we need to break down the ‘bro’ culture that has defined Wall Street and the tech industry for decades.”

She adds, “I’m in a unique position to help elevate and foster the next generation of female leaders and you better believe it is something that I actively do every day. This is one of my passions. When it comes to equal access, opportunity and compensation it’s important for people no matter the gender to not only advocate for themselves but to find their mentors that will advocate for them and extend that seat at the table.”

Gellert emphasizes that female leaders in Fintech need to focus on being role models and active stewards for women entering the industry. She points out, “That means being active recruiters ourselves and ensuring diverse candidate slates in our recruiting processes. That means engaging and mentoring women when they come to our companies. That means ensuring that we are working with our compensation teams to be mindful of existing compensation gaps.”

Gellert adds, “That also means being aware of different behavioral norms for men and women. In my experience it is absolutely the case that men ask for promotions and raises far more frequently than women do—in a world biased towards action that means that men are more likely to get more just because they ask for it more.”

Fang points out, “It doesn’t matter what gender. I never feel I’m different. I don’t feel gender [should be] an issue. On my top management team, half or more are women.”

Sidhu says it’s time to think more innovatively in the industry and move on from gender discrimination. She advocates “diversity to transcend all players in the Fintech ecosystem. Fintech can be instrumental to drive quality for opportunity. So many other industries can do same thing.” People need to be more open to conversations, such as equal pay for women. Fintech can help support women by financing their businesses, she adds, noting, “In my organization, we promote women who are exceptional, and reward with leadership-level recognition and compensation.”

Accountability for gender equality, diversity
Notes Kay, “Yes there is more work to do; however, we’re starting to make strides in leveling the playing field. Today there are many prominent recognition programs, such as the Bloomberg Gender-Equality Index, that hold companies accountable. This initiative recognizes 230 companies, of which 96 are financial firms, for their commitment to transparency in gender reporting and advancing women’s equality.

She adds, “The index includes companies from 10 sectors, headquartered across 36 countries and regions. Collectively, these companies have a combined market capitalization of USD 9 trillion and globally employ more than 15 million people, of which 7 million are women. Programs like these that showcase all the ways in which the world’s top companies are promoting diversity throughout their organizations provide an even greater platform for recognition and awareness.”

Me Too Movement ramps up awareness
Sidhu comments that the Me Too Movement cast a light on women’s struggles and inequality: “The Me Too Movement shed light on the problem. I’m not happy it had to come into being. The silver lining is that it brought the whole country together to understand that issues exist. [This drove] awareness. Awareness drives change.”

It’s a marathon, not a sprint…and everyone needs to get in on the race
Tescher points out, “We are working hard to identify and invest in women founders. But to be clear, that is only one small action step relative to what’s needed to change structures and cultures. Moreover, women didn’t cause this problem. It shouldn’t be on us alone to solve it.”

These Award finalists are helping demolish the glass ceiling and creating a new culture of diversity, equality and education in Fintech along the way.

The Fintech Women of the Year award winner will be announced Tuesday, April 9th along with awards in 18 other categories. LendIt Fintech has a variety of Women in Fintech Special Programs that will be happening at their 2019 event and throughout the year.

The Ethics of $2B Lemonade, $100B Softbank Visions, and $500MM of Binance IEOs

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I’ve been seeing a lot of Fintech headlines recently that make me raise my hands in the air, and go “Come on, are you for real!?”. I imagine a lot of people feel similarly frustrated by Lemonade looking to go public at a $2 billion valuation on $50 million of revenue, Initial Exchange Offerings on crypto exchanges raising over $500 million this year, Facebook’s tone deaf Silicon Valley club crypto money, or SoftBank talking about selling its overpriced $100 billion Fintech unicorn fund in an IPO. So other than getting crankier with age (Happy Father’s day everyone!), I want to dig a little bit into the concept of fairness, asymmetric information, economic rents, and how this can help disentangle feelings from thoughts on these news items.

Ten Years of Investing in Marketplace Lending

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This month marks ten years since I made my first investment in what was then called peer to peer lending. In July, 2009 I transferred $500 in to LendingClub to give it a try. Little did I know that first small investment would end up changing my life.

I had first read about peer to peer lending back in 2008 and I was immediately intrigued. I discovered Prosper but when I tried to open an account there they were in a quiet period. So I went looking for an alternative platform and found LendingClub. Within a few months I added $10,000 to that initial $500 investment. Then, I became so enamored with the whole idea of peer to peer lending that I was soon rolling over 401(k) accounts for my wife and I, as well as telling all my friends about it.

It was just over a year later that I decided to start blogging about this industry. Back then no one was writing about it and I really believed the industry had so much potential. So, I started the blog that would become Lend Academy back in November, 2010. The more I learned about peer to peer lending the more convinced I became that it had tremendous potential.

In 2013 as the industry was getting ready to take off I started LendIt, along with my fellow co-founders. It was the first ever conference focused on online lending and the one day event sold out. Then came the go-go years of 2014 and 2015 where dozens of new platforms got under way and venture capital was flowing into the space. The industry had its biggest setback in 2016 with the LendingClub crisis but the strong platforms endured and industry moved to focus on profitability.

Now, as I look back on the last 10 years I see so much has changed. The industry is now known as marketplace lending (thanks to Charles Moldow of Foundation Capital) and it has driven a resurgence in consumer lending and small business lending.

Ten Ways Marketplace Lending Has Changed Since 2009

1. Scale

Back in 2009 LendingClub was a tiny operation. They had originated less than $50 million in total loans when I opened my first account (today they originate more than double that number every working day). Prosper was several times larger than LendingClub back then and was considered the leader in the space. But it was still very small, having originated less than $180 million. Prosper now does more loan volume than that every month.

2. The Rise of Institutional Investors

This is probably the biggest change over the past 10 years. We have gone from an industry dominated by retail investors in 2009 to one dominated by institutional investors in 2019. Self-directed individual investors now make up significantly less than 10% of the total volume at LendingClub and Prosper and that percentage continues to fall. This is one of the reasons for the change from P2P lending to marketplace lending.

3. The Rise of Automation

Along with this movement towards institutional investors was the rise of automation. When I first started investing I would browse all the loans and invest one by one. Then I moved to downloading an Excel file of available loans, running a macro, and then investing in a batch. Soon the platforms allowed automated investing and then third party tools like NSR Platform came along that allowed individual investors to completely automate their investment decisions.

4. Changing Return Expectations

When I started investing the average return to investors on LendingClub’s platform was close to 10%. After Prosper came out of their quiet period their average return was well over 10%. Of course, I wanted high returns so I always had this 10% number in mind when I started investing. As investors flocked to the space returns dropped and it is now very difficult to earn double digit returns. You can see how my returns have changed, along with my expectations, over time in my quarterly returns posts.

5. Public Companies

When LendingClub went public in December, 2014 it was a seminal moment for marketplace lending. The largest company in the space completed a successful IPO that valued the company at $8.5 billion. OnDeck Capital went public the very next week in a smaller but also quite successful IPO. Unfortunately, the markets have not been kind to these companies and they are now both worth a fraction of their market value at IPO.

6. Underwriting Challenges

The year 2015 was probably the fastest growth year in the industry’s history. It also was the year where cracks began emerging. I remember talking to hedge fund investors back then who, by December of that year, had decided to pause their investments due to unexpectedly poor performance. Underwriting standards had dropped as the leading companies chased growth. We now know that 2015 and 2016 were the worst years of this past decade when it comes to loan performance.

7. First Crisis

On May 9, 2016 the industry changed forever. LendingClub founder and then CEO was forced to resign amid improper loan sales and potential conflicts of interest. This had a chilling effect on the entire industry that is still being felt today. Every marketplace lending platform was affected by this news and the reputation of the industry took a brutal hit. While LendingClub has recovered somewhat from that day and the industry has survived its first crisis, it remains the darkest day in my ten years of involvement.

8. The Increased Role of Banks

The first banks to invest in marketplace loans was back in 2013 but by 2015 dozens of banks were investing on multiple platforms. While some pulled back after the 2016 crisis many more have entered the space today. Banks see both consumer and small business loans as sectors where they want exposure. Many choose to invest via existing platforms, some are partnering with platforms that provide banking-as-a-service to originate loans, and some have launched their own online platforms. Banks are firmly entrenched in online lending today.

9. The Growth of Securitization

It was a big deal when the industry completed its first securitization back in 2013, a $53 million package of LendingClub loans sold by Eaglewood. Today, there have been more than 150 closed deals worth around $50 billion. SoFi is by far the largest issuer often accounting for more than half the deals in any given quarter. PeerIQ releases an excellent Securitization Tracker every quarter that details every deal in the space. Most, if not all, marketplace lending platforms see securitization as a critical part of their funding mix today.

10. The Emergence of Fintech

Back in 2009 the term fintech didn’t exist. Now, the innovations that have occurred in the lending space are part of a broader narrative. Fintech is the term used to describe not just lending innovation, but also includes digital banking, payments, money transfers and personal finance. I would argue that lending is the largest and most important of all these segments but they all come under the fintech banner today.

Final Thoughts

When you look at the unsecured personal loan space there was a void before the likes of LendingClub and Prosper came along. Now, consumers and small businesses have more choice for financing than ever before and have saved millions of dollars in interest in the process. Applying for a loan online was a novel concept in 2009 whereas today we can apply on our phones and receive approvals instantly. The marketplace lending platforms have been the ones leading the charge here when it comes to lending innovation.

The one disappointment of the last decade is the lack of opportunity for individual investors, particularly non-accredited investors. Back in 2009 I would have thought that by 2019 there would be dozens of choices for investors but the reality is you can count on two hands the totality of opportunity today.

It has been quite the journey, these past 10 years. No one could have predicted how the industry would change. The next 10 years will see the banks become ever more involved with online lending and that is not necessarily a bad thing. Consumers and small businesses will continue to have more choice and platforms will have to keep innovating. But the industry is more mature today than it ever has been and is well positioned to grow as the total market keeps expanding.

My Quarterly Marketplace Lending Results – Q1 2019

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Put this in the “better late than never” department. Yes, I know it is late July and I am only now just publishing my Q1 2019 returns. Thanks to those of you who reached out but rest assured I am still committed to sharing my results publicly and I apologize for the extreme tardiness of this update.

I am happy to report this quarter that my returns continue to improve. Since hitting bottom in Q2 of 2018 my returns have improved each quarter. Both LendingClub and Prosper showed their best returns in almost two years as the underwriting changes that were implemented in 2017 have had a positive impact.

Overall Marketplace Lending Return at 6.09%

My overall returns for the twelve months ending March 31, 2019 was 6.09%. This is up from 5.35% that I reported in Q4 and 4.77% in Q3. My original six LendingClub and Prosper accounts had another full percentage point jump. Last quarter I reported the returns on those six accounts had jumped from 3.19% in Q3 to 4.16% in Q4. We see this quarter they are at 5.18%. This is quite a remarkable turnaround and while I still think 5% is not a high enough return for unsecured consumer lending, it is certainly moving in the right direction.

One point to note is that I am liquidating my taxable accounts at LendingClub and Prosper. I have a little too much exposure to consumer credit in my overall portfolio and so I will be focused only on investing in my IRA accounts there. I am moving my redeemed cash into other marketplace lending accounts as well as other investments outside of fintech.

Now on to the numbers. Click the table below to see it at full size.

As you look at the above table you should take note of the following points:

  1. All the account totals and interest numbers are taken from my monthly statements that I download each month.
  2. The Net Interest column is the total interest earned plus late fees and recoveries less charge-offs.
  3. The Average Rate column shows the weighted average interest rate taken directly from Lending Club or Prosper.
  4. The XIRR ROI column shows my real world return for the trailing 12 months (TTM). I believe the XIRR method is the best way for individual investors to determine their actual return.
  5. The six older accounts have been separated out to provide a level of continuity with my earlier updates.
  6. I do not take into account the impact of taxes.

Now, I will break down each of my investments from the above table grouped by company.

LendingClub

As I said in my last update I am liquidating my original LendingClub account that I opened in 2009 and this will be the last time you will see a screenshot of this account. I am actually a little surprised that even as I have been winding down this account returns are holding up well, at least for now. I stopped reinvesting in September last year, so even with six months of no new notes the returns have continued to improve. Eventually, that will stop being the case and defaults will drag the number down. But all of my LendingClub accounts are improving as the worst looks like it is behind us now.

Prosper

Prosper has had an even stronger recovery than LendingClub. I stopped investing in my main Prosper account, which was opened in 2010, back in September as well and the returns are 1.5% higher than Q4 2018. I will continue to reinvest in my IRA account which is my best performing account among Prosper and LendingClub. This was the one account that underperformed for several years because it had a more conservative approach. But that served me well when the higher risk loans started defaulting at much higher rates.

Lend Academy P2P Fund

About the only thing good I can say about the Lend Academy P2P Fund, managed by our sister company NSR Invest, is that returns are improving. The TTM return of 3.72% is a full percentage point better than last quarter but we are still underperforming where I would like us to be.

P2Binvestor

P2Binvestor is an asset-backed working capital platform for small businesses that has been around for about four years. Full disclosure, I am on the advisory board of this company and have known the founders since before they began operations. If you go back and look at my historical returns for this holding you will notice that it is a very consistent performer. Every quarter its returns are in the 8-10% range. I have had a little cash drag on this account in recent months as cash builds up quicker than I can deploy it but even with that returns have remained solid.

PeerStreet

I have been investing on the PeerStreet real estate platform since April of 2016. I have invested in dozens of fix and flip properties that have all performed well. But March saw my first principal loss on the platform as a home that PeerStreet foreclosed on was sold at a small loss. I ended up losing $105 (after interest payments) on my investment of $1,000 on this property. This caused my TTM returns to dip under 6% for the first time but I am still happy with the investment and am reinvesting all my principal and interest payments.

Streetshares

Small business lender Streetshares continues to be my best performing account by a considerable margin. I have deposited another $10,000 into Streetshares because of their consistent track record of great returns. Now, it is getting more difficult to deploy capital on this platform and I have received several emails from disgruntled investors who are not able to invest any capital at all. Even when auto-invest is set to invest in every loan often no investments are made for days at a time. I have spoken to the CEO about this and they have said that early investors get preference on these loans. I have been investing since 2015 so I continue to find loans (although I can still go days without deploying any capital) but many new investors find themselves unable to put any money to work. The CEO is encouraging everyone to invest in their Veteran Business Bonds that pay a fixed return of 5%. Clearly that is very different to the returns I am getting but I hope that provides some color on this issue.

AlphaFlow

I opened my account on real estate platform AlphaFlow in August of 2017 when I rolled over an existing Roth IRA account. Then  added to this account in Q1 of last year. What I like about AlphaFlow is that they curate real estate investments and then allow investors to easily deploy, even a relatively small amount of capital, across 75-100 properties. I am currently invested in 113 properties across 15 states.

Money360

Money360 is all about bridge financing for commercial real estate. This is not an asset class that is easily accessible for individual investors. The fund invests in bridge loans of $3 million to $25 million across a variety of property types: office, retail, self storage, hospitality, industrial, multi family, manufactured housing and special purpose.

YieldStreet

I love finding esoteric asset classes that are uncorrelated with other kinds of investors. This what you get with YieldStreet. They find interesting investment opportunities that you will not often find on any other platform. I have invested in a portfolio of litigation pre-settlements, a loan for a shipping tanker, and in the second quarter I invested in a loan for vessel deconstruction. The minimums on these investments are quite high, usually $10,000 or more. So, I really like that YieldStreet added an interest bearing wallet last year. While I am waiting for the cash to build up for my next investment I am earning 2.2% on my money.

Fundrise

Fundrise is the only platform that is part of this roundup that is open to to non-accredited investors, beyond LendingClub and Prosper, of course. It is a real estate platform that has created a unique eREIT product that is similar to a publicly tradable REIT but with more transparency and lower fees. I have invested in their Income eREIT which has holdings in 60 projects, mainly multi family homes, apartment building remodels and commercial property. Today, they make investing even easier with Fundrise 2.0 where you can choose from three options: Supplemental Income, Balanced Investing or Long Term Growth.

Final Thoughts

I said in my last update that I need all my accounts above 5% to provide an adequate award for the risk I am taking. While I am not there yet, I like the direction the numbers are heading. And closing down my taxable accounts to focus my investing on IRA accounts will certainly help me come tax time.

Even though I am pulling some money out of my marketplace lending portfolio I am still very much committed to this space. I intend to maintain a balance of around $750,000 for now and will probably increase that to $1 million or more over time. For me, I love the relatively consistent returns that I get from marketplace lending and I expect that if and when the next downturn comes it will perform better than most other asset classes.

Finally, I like to focus on one number at the end of these reports, the total amount of net interest I have earned. As my returns have increased from their lows this number has also increased. My net interest for the 12 months ended March 31, 2019 was $46,619, the highest this number has been in almost two years.

My Quarterly Marketplace Lending Results – Q2 2019

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[Update: an earlier version of this post had the preliminary return number of 6.20% as I awaited for the final statement. I underestimated the closing balance there so my actual return was 6.30%]

Time for an update on my quarterly investment returns. This is something I have been doing for many years now and I know it is appreciated by many of you. I started out reporting on my marketplace lending investments in Q4 2011 and have provided updates every quarter since then. I share all the details of my LendingClub and Prosper investments as well several other investments I have made in the online lending space.

Overall Marketplace Lending Return at 6.30%

The upward trend in my returns continued in Q2, making it the fifth quarter in a row with increasing returns. My preliminary return for the 12 months ending June 30, 2019 is 6.30%, the best I have achieved since Q3 2017.

My six original accounts at LendingClub and Prosper have all been open for at least seven years so they are very mature accounts that have experienced several turns of capital as I have kept reinvesting over the years. I have separated these out because these were the accounts I had when I first started doing these reports so readers can go back and see how they have trended over time. But as I have said before I am liquidating my taxable accounts here and will focus my investments in consumers loans in my retirement accounts.

Underwriting changes that were made in 2017 continue to bear fruit for my personal loan investments. My six original accounts had a return of 5.48%, a vast improvement from the 2.34% return of just a year ago, and back to near where it should be. In today’s benign credit environment I would still like to see returns in the 6-7% range for personal loans and we are headed in that direction.

Now on to the numbers. Click the table below to see it at full size.

As you look at the above table you should take note of the following points:

  1. All the account totals and interest numbers are taken from my monthly statements that I download each month.
  2. The Net Interest column is the total interest earned plus late fees and recoveries less charge-offs.
  3. The Average Rate column shows the weighted average interest rate taken directly from LendingClub. Prosper no longer shows this information.
  4. The XIRR ROI column shows my real world return for the trailing 12 months (TTM). I believe the XIRR method is the best way for individual investors to determine their actual return.
  5. The six older accounts have been separated out to provide a level of continuity with my earlier updates.
  6. I do not take into account the impact of taxes.
  7. My Lend Academy P2P Fund returns are not final which is why there is an asterisk in the ROI numbers.

Now, I will break down each of my investments from the above table grouped by company.

Lending Club

Above is a screenshot of what I call Lending Club Traditional IRA. This account was opened in 2010 where we rolled over a 401(k) my wife had in a previous job. It was just over $53,000 that we initially deposited and we have reinvested all principle and interest since that time. So, the account has almost doubled in value since 2010 and that initial investment has resulted in over $500,000 in principal plus interest payments as that money has been cycled several times into new loans. I have been very pleased to see the improvement in returns at LendingClub over the past year. While I have been winding down my taxable account, given this improvement I was comfortable putting in a new $6,500 into the traditional IRA account held in my name.

Prosper

My Prosper accounts have also been doing really well compared to a year ago. Apart from the tiny account I have been winding down both my taxable and IRA accounts have been performing well. The above screenshot is for my Roth IRA account that was opened in 2014 with a $50,000 investment. This account is managed by NSR Invest using their balanced approach which has been my most conservative account over the past five years and it is no coincidence that its performance has held up well. My taxable account here is being wound down as I put my focus into non-taxable accounts for Prosper and LendingClub.

Lend Academy P2P Fund

[Update: Q2 statement displayed above]

We are still awaiting final numbers for The Lend Academy P2P fund for the the second quarter. I have included our estimate which should be close to the final number. I will update this section when that is final.

P2Binvestor

P2Binvestor is an asset-backed working capital platform for small businesses that has been around for about five years. Full disclosure, I am on the advisory board of this company and have known the founders since before they began operations. P2Bi continues to provide consistent returns in the 8-10% range. I am investing in lines of credit typically backed by accounts receivable so unlike most of the investments here these are short term loans with 30-60 day liquidity.

PeerStreet

I opened my PeerStreet account about three years ago when I decided to put money to work at the real estate platforms. The expected returns are as high or higher than consumer credit these days and your investment is backed by a hard asset. PeerStreet focuses on short term loans – typically 6-24 months with yield to investors in the mid to high single digits. I like the $1,000 minimum per investment at PeerStreet which has enabled me to feel comfortable starting with a relatively small investment. I have cycled through my initial capital several times already as the payback on many of these loans ends up being less than 6 months.

Streetshares

Small business lender StreetShares continues to be my best performing investment as it is still showing a solid double digit return and has done so for many years. I have added to this investment over time but I will probably stick with what I have as it is getting more difficult to deploy new capital. I invest in every single loan they make available and even then I still have maintained a considerable cash balance which has been a drag on returns. I heard a rumor that they are closed to new platform investors now as they are pushing everyone into their Veteran Business Bonds that pay 5%.

AlphaFlow

I opened my account in real estate platform AlphaFlow in August of 2017 when I rolled over an existing Roth IRA account. What I really like about AlphaFlow is that you can quickly build a diversified portfolio of 75-100 properties as they deploy new money across multiple lending platforms. Also, since I am not an expert in real estate investing I appreciate the fact that they provide expertise in selecting the very best properties from these different platforms.

Money360

What I like about the Money360 fund is that it gives me access to large commercial real estate loans. This fund, called M360 CRE Income Fund LP, provides exposure to short term bridge loans for commercial property with loans ranging in size from $3 million to $25 million. These are 12-month to 36-month loans with an LTV of less than 75% and broad geographic diversification.

YieldStreet

YieldStreet is the most unusual platform in my portfolio. They look for unique asset-backed investment products such as real estate loans, secured business loans, litigation finance and marine finance. I have invested in a litigation finance offering consisting of a portfolio of plaintiff advances related to 365 different personal injury cases. I have also invested in a credit facility collateralized by up to three tanker vessels, a very unique offering. These two offerings are both paying north of 10%. They also pay good interest (1.7% as of this writing) while your cash is parked so I didn’t mind keeping over $20,000 there as I wait to deploy my capital into the next deal.

Fundrise

Fundrise is a real estate platform focused on the individual non-accredited investor. I opened up my account there more than three years ago and I continue to be impressed with their consistent returns. I am invested in their Income eREIT fund which is currently invested in 66 projects, primarily multi-family home construction. New investors can get started with just $500 and build a diversified property portfolio with their simple investment plans.

Final Thoughts

I have been very pleased by the comeback in the consumer loan segment. I have also learned my lesson. For many years I chased the highest risk loans and while that produced fantastic returns for quite some time it ended up being a bad decision as I was left with barely positive returns for a year or two. Now, I am invested across the risk spectrum and seeing better and more consistent results. I will not be able to achieve double digit returns again here but I am ok with that. With a recession likely in the not too distant future I want to stay well diversified, erring on the conservative side, when it comes to risk.

While I still like the personal loan asset class I have been trimming my positions here and investing into other asset classes as you can see in this report. Many of these provide consistent returns that are uncorrelated with most of the other investments in my portfolio.

Finally, I like to focus on one number, the total amount of net interest I have earned. Like my overall returns this number continues to rebound with my net interest for the 12 months ended June 30, 2019 over $47,000.

* Estimate based on an estimated conservative return for the Lend Academy P2P Fund. Final number will be updated before next quarter’s report.

The Ten Biggest News Stories of the Decade in Marketplace Lending

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I started writing about marketplace lending back in 2010, so I have spent almost the entire decade immersed in this space. While we have expanded our coverage on Lend Academy today beyond marketplace lending this remains a major focus.

We have certainly come a long way in the past ten years and the industry is almost unrecognizable from where it was in 2010. Back then there were just two notable companies in the space, LendingClub and Prosper, originating just a few million dollars a month in loans. No one could have predicted that by the end of the decade marketplace lending would have led to a resurgence in personal loans and changed expectations for customer experience across all lending verticals.

As I look back at the past decade here are, in my opinion, the top ten most important news stories in chronological order.

Prosper Recapitalizes and Brings in a New Management Team
(January 2013)

At the time this was a huge story. The number two marketplace lender had been struggling for some time and was in serious danger of running out of money. This new funding round was small by today’s standards at $20 million but it ensured that Prosper would remain a going concern. The deal was architected by, the now fintech legend, Ron Suber as he brought in a new management team and a new board to guide Prosper on to their future growth path. It helped set the industry up for success over the next several years.

LendingClub Becomes First Marketplace Lender to go Public
(December 2014)

This was a momentous day for marketplace lending as market leader LendingClub became the industry’s first company to go public. The IPO was a huge success by any measure. By the end of the first day of trading LendingClub was valued at $8.46 billion and they had raised $870 million in cash. Of course, at the time we had no idea what would happen to the stock but there was a sense a real optimism that this company was going to change the world.

Second Circuit Rules on The Madden Decision
(August 2015)

The biggest legal issue the industry dealt with this decade was the ramifications of the Madden v Midland decision. We have been following this case since the Second Circuit ruling in 2015 and it has had far reaching consequences for the industry. It has led to a reduction in lending activity in Second Circuit states (NY, CT and VT) but the bigger concern was that this kind of ruling would spread nationally. That has not happened and there have been multiple regulatory fixes proposed plus the OCC and FDIC have weighed in as well. But as of this writing nothing concrete has changed since the 2015 decision.

SoFi Raises $1 Billion Led by SoftBank
(September 2015)

In many ways SoFi was the dominant company of marketplace lending in the 2010s. They raised more money than any other company and this huge round led by SoftBank in 2015 dwarfed every other funding round of the decade. SoFi basically invented an entire category, the student loan refinance, and aggressively moved into other areas of lending and wealth management.

OnDeck Announces a Partnership with JPMorgan Chase
(December 2015)

The emergence of partnerships between banks and fintech lenders was one of the big themes of the decade. And no partnership was bigger than the one announced in late 2015 by OnDeck and JPMorgan Chase, the largest bank in the country. This was a big deal not just for OnDeck but for all of fintech as this kind of partnership suddenly became top of mind for all U.S. banks.

Lending Club Founder and CEO Renaud Laplanche Resigns
(May 2016)

We awoke on Monday, May 9th, 2016 to the truly shocking news that the founder and CEO of LendingClub, Renaud Laplanche, had resigned. What actually happened was that the Board demanded his resignation primarily over the improper sale of $22 million in loans. This had ramifications for the entire industry as we all suffered due to this event and some would argue we are still feeling the negative effects from this decision by the LendingClub board.

Goldman Sachs Launches Marcus, a New Consumer Lending Platform
(October 2016)

The rumors had been swirling for some time when Goldman Sachs launched their Marcus platform in October 2016. Their initial product was a consumer loan in direct competition to LendingClub, Prosper, Marlette and others. They went on to become the fastest growing consumer lending platform ever as Goldman poured a huge amount of resources into the effort. Everyone in fintech was suddenly talking about Goldman Sachs as the company began to transition from serving wealthy individuals and corporations to mass market consumers.

The Emergence of Amazon, PayPal and Square in Small Business Lending
(July 2017)

Another theme for the 2010s is the emergence of several tech companies as leaders in small business lending. While the likes of OnDeck, Kabbage and Funding Circle dominated for much of the decade by 2017 it was obvious that PayPal, Square and Amazon were all going to become major small business lenders. These companies all have unique advantages with no customer acquisition costs and access to proprietary data sources.

Funding Circle Goes Public on the London Stock Exchange
(September 2018)

Funding Circle was the first marketplace lender to expand internationally. After having launched in the UK in 2010 the company expanded to the USA in 2013 and then to Germany, Spain and the Netherlands in 2015. In 2018 they became the first UK marketplace lender to go public with an IPO on the London Stock Exchange. The company raised £300 million at a £1.5 billion valuation.

Judge Rules OCC Unable to Issue Fintech Charters
(October 2019)

The OCC first proposed a special fintech charter back in 2016 and there was immediate pushback from the states. So, it was not surprising, when in 2018 the OCC officially allowed firms to apply, that no company jumped at the opportunity. With the states challenging the authority of the OCC to allow such a charter no company wanted to be caught in the crossfire. In October a federal judge ruled that the OCC does not have the legal authority to issue bank charters to non-banks. While the OCC has appealed the decision the fintech charter is dormant for now.

Those are my top 10 stories of the past decade in marketplace lending. Now, I realize I left out many significant news items, as my initial first cut had close to 20 big stories from the past decade. But it was a momentous decade that, when looked at in hindsight, showed a tremendous amount of progress.

As we start the 2020s I can only imagine what big new developments will take place this decade. But I am very confident that by the end of 2029 the lending space will have been transformed once again.

Is Plaid cheap at $5.3 billion for $500 billion Visa?

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I dig deeply into the $5.3 billion acquisition of data aggregator Plaid by $500 billion payments network Visa. We examine why this deal is worth 25-50x revenue, while Yodlee’s sale to Envestnet was priced much lower. We also look at how Plaid could be an existential threat to Visa, and why paying 1% of marketcap to protect 200 million accounts may be a good bet. Broader implications for product manufacturers across payments, investments, and banking also emerge — the middle is getting carved out, and infrastructure providers like Visa or BlackRock are moving closer to the consumer.


My Quarterly Marketplace Lending Results – Q3 2019

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I am certainly late with this but I have finally found the time to bring you my quarterly returns report for Q3 2019. Every quarter I share my marketplace lending investment returns with the world. I started doing this back in 2011 with my LendingClub and Prosper accounts and since then I have added many investment positions across a variety of investment vehicles and platforms.

Overall Marketplace Lending Return at 6.29%

After a consistent upwards trajectory for the past year my returns appear to have stabilized at least for now. My trailing 12 month returns for the year ended September 30, 2019 across all my accounts was 6.29% which is almost exactly the same as my last update (6.30%). My original six accounts, all with Lending Club and Prosper, were also relatively stable at 5.34% versus 5.48% last quarter.

I continue to move money out of my taxable LendingClub and Prosper accounts, focusing my investments here on my retirement accounts. My standout account continues to be Streetshares, the only one of my investments solidly in double figures. But I am also very happy with AlphaFlow, Money360, Yieldstreet and Fundrise as they are all returning more than 8%.

Now on to the details. Click the table below to see it at full size.

As you look at the above table you should take note of the following points:

  1. All the account totals and interest numbers are taken from my monthly statements that I download each month.
  2. The Net Interest column is the total interest earned plus late fees and recoveries less charge-offs.
  3. The XIRR ROI column shows my real world return for the trailing 12 months (TTM). I believe the XIRR method is the best way for individual investors to determine their actual return.
  4. The six older accounts have been separated out to provide a level of continuity with my earlier updates.
  5. I do not take into account the impact of taxes.

Now, I will break down each of my investments from the above table grouped by company.

LendingClub


The above screenshot if for my wife’s Traditional IRA that was opened in 2010. It has now almost doubled in value over this time period. My original LendingClub account (Lending Club Main) is taxable so I made the decision in late 2018 to liquidate that account to focus my investments there on retirement accounts. I have been selling some loans on the secondary market to speed up the liquidation process but for the most part I am letting the loans mature and taking the cash out as it builds up.

Prosper

The above screenshot is for my Prosper Roth IRA account which continues to be my best performing of all my Prosper and LendingClub accounts with a TTM return of 7.48%. It was opened in 2014 and is managed by our sister company, NSR Invest. From the outset this account was built to be a balanced account, with investments across grades A-D. Whereas my other P2P lending accounts tended towards higher risk this account never tried to swing for the fences and I have been rewarded for this more conservative approach. One interesting point to note on my taxable Prosper account (Prosper Main). I stopped reinvesting at the end of Q3 2018, so within one year I have managed to withdraw more than half the money in the account. There is no secondary market on Prosper so this is all done through loan repayments. I have found it a little surprising how quickly the cash has built up in this account.

Lend Academy P2P Fund


The Lend Academy P2P fund, managed by NSR Invest, invests in Lending Club, Prosper and Funding Circle loans and has a small position in Upstart as well. The fund has not been performing as well as I hoped as it has been hurt by underperformance across all the holdings. But as LendingClub and Prosper have turned things around the fund is also beginning to perform better.

P2Binvestor


P2Binvestor is an asset-backed working capital platform for small businesses based in Denver, Colorado. Full disclosure, I am on the advisory board of this company and have known the founders since before they began operations. While the company has had some challenges in recent months in bringing new deals to the platform I continue to appreciate the consistent returns of more than 8% that I have received there for many years.

PeerStreet

PeerStreet is my longest running real estate platform investment with this IRA account now being open for more than three years. PeerStreet is focused on fix and flip properties with loan durations typically between 6 and 24 months. Because these are real estate loans they are backed by the property with up to a 75% LTV. I invest in $1,000 per loan and currently have 21 different loans in my portfolio right now.

Streetshares

Small business lender Streetshares continues to be my best performing investment. Their returns have been surprisingly consistent given these are relatively high interest business loans. I invest in every loan they make available to platform investors which is barely enough to keep me fully invested. I believe they are no longer open to new platform investors because have a Veterans Business Bonds program that pays 5% and they are channeling new investors to that program. They are a veteran-owned company and have a large percentage of borrowers who are also veterans.

AlphaFlow


AlphaFlow is a real estate platform that allows investors to build a diversified portfolio of short term real estate loans quickly and easily. They have a unique structure that gives investors exposure to 75-100 loans right off the bat. Unfortunately, the company recently announced they are closing down their retail platform to focus on institutional investors so this account will slowly be liquidated.

Money360


Money360 is another real estate platform but they are focused on large commercial properties. These are primarily bridge loans in the $3 million to $25 million range. I have invested in their M360 CRE Income Fund LP which is managed by M360 Advisors, LLC, their wholly owned investment management company. These are 12-month to 36-month loans with an LTV of less than 75% and broad geographic diversification.

YieldStreet


YieldStreet has become a real fintech success story. This unique platform has funded over $1 billion of investments to date in  unique offerings such as litigation finance, marine finance, art portfolios and commercial real estate. In the summer of 2017 I invested in their “Diversified Pre-Settlement Portfolio XXIII”, which is a portfolio of plaintiff advances related to 365 different personal injury cases. This investment has now been repaid in full and I am investing in new opportunities. The minimum investment is usually $10,000 so it takes a while for the cash to build up to reinvest but YieldStreet makes that a non-issue as they pay interest on the cash in the YieldStreet Wallet.

Fundrise

Fundrise is a real estate platform created with the individual non-accredited investor in mind. They have made it really easy to get started with a minimum investment of just $500 in their starter plan. They invest primarily in commercial properties such as apartment buildings and office buildings often as part of a large renovation project. They also have some single family home fix and flips. They have core plans with three flavors: Supplemental Income, Balanced Investing and Long Term growth. These are all backed by their eREIT technology and I am invested in a legacy product called their Income eREIT.

Final Thoughts

I feel like the dark days of 2018 are behind me now where returns dropped below 5% as the consumer lending platforms struggled. While my goal is definitely to be above 7% I am not unhappy with where I am today at 6.29%. I continue to divest from my taxable LendingClub and Prosper accounts while deploying some cash into other platforms and taking the remainder off the table to maintain a steady level of principal.

All lending-type investments should be held in IRA accounts if possible given that interest earned is taxed as ordinary income. LendingClub and Prosper have the additional problem of defaults that may not be tax deductible if they total more than $3,000 a year. This has been the case for me which is the reason I am liquidating my two largest taxable accounts there.

Finally, I will highlight my Net Interest number. This is the money that my portfolio actually earned in the past year: $48,569. This is the highest number I have had in over two years.

As always feel free to share your thoughts in the comments below.

Can the $4 Trillion municipal bond market be a digital asset in your pocket?

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I reflect on ConsenSys acquiring a broker/dealer focused on municipal bonds, and why we believe that blockchain-native platforms are a fantastic fit for this $4 trillion asset class. Can direct holding of franctional munis enable deeper community participation and usage of common resources? Are there new sources of liquidity to unlock? At the same time, there are real dangers. I compare the evolution of digital lenders and their funding sources against the current possibilities in municipal bond markets. We also look into the reasons that some innovative Fintechs have failed to achieve their stated missions, and what can be learned and done better.

My Quarterly Marketplace Lending Results – Q4 2019

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I have finally been able to conclude my quarterly returns report from Q4 of last year.  I have been sharing my detailed quarterly returns with readers since 2011 and I will continue to do so for the foreseeable future. Given the turmoil we are experiencing today it is going to be fascinating to see how these companies hold up as we are almost certainly headed for a significant downturn.

Q4 of 2019 feels like a decade ago now with how much the world has changed. Given how the economic crisis really didn’t get started until the second half of March we won’t see much impact from returns even in my Q1 2020 report. But this year is going to be interesting to say the least.

Overall Marketplace Lending Return at 5.12%

The overall returns for the calendar year 2019 of my marketplace lending investments stood at 5.12%. This is down over 1% from my last update but the drop is almost entirely due to my largest holding: the Lend Academy P2P Fund which took a major hit in Q4. More on that below.

Interestingly, my original six LendingClub and Prosper accounts had their best quarter since Q1 2017 as underwriting changes made in 2017 have continued to bear fruit for investors. My lone holding in double figures is once again Streetshares as it continues to perform extremely well.

Now on to the numbers. Click the table below to see it at full size.

As you look at the above table you should take note of the following points:

  1. All the account totals and interest numbers are taken from my monthly statements that I download each month.
  2. The Net Interest column is the total interest earned plus late fees and recoveries less charge-offs.
  3. The XIRR ROI column shows my real world return for the trailing 12 months (TTM). I believe the XIRR method is the best way for individual investors to determine their actual return.
  4. The six older accounts have been separated out to provide a level of continuity with my earlier updates.
  5. I do not take into account the impact of taxes.

Now, I will break down each of my investments from the above table grouped by company.

LendingClub

The above screenshot is from my wife’s traditional IRA account that has been open for almost 10 years. It was opened with around $53,000, with no additional deposits, meaning that it has now doubled in that time period. As I have written before I am liquidating my original LendingClub account that was opened in 2009 since it is taxable. For my consumer lending investments I am slowly liquidating my taxable accounts due to the tax advantages of an IRA account. For info on LendingClub’s response to the coronavirus you should check out Ryan’s recent update.

Prosper

As with LendingClub I am liquidating my main Prosper taxable accounts and focusing on my Roth IRA account (screenshot above) that I opened in 2014. I stopped reinvesting in my taxable account in September 2018 and have been withdrawing cash as it has built up, totally $50,000 in the last year. Overall, my Prosper Roth IRA has been my best performing account over the past several years as it was setup from the get-go as a more conservative investment strategy,

Lend Academy P2P Fund

As you can see in the above statement the Lend Academy P2P Fund, managed by NSR Invest, did not have a good year with just a 0.24% return. We had to take a write down in Q4 for an investment we made in a trade finance platform called SureFunding where we had a small position. This has resulted in a markdown of the value of this investment that has impacted the fund NAV. To be honest, we have underperformed with our own fund now for the past couple of years so we have made the difficult decision to close down the fund. We will not be reinvesting and will be returning money to investors as the investments wind down.

P2Binvestor

I have been a big fan of the asset-backed small business lender, P2Binvestor, for many years and I was on their advisory board until late last year. But with new ownership and no new investments available to investors for several months I have started to withdraw the cash as it builds up. They have also had some challenges with defaults but overall this has been a good investment for many years.

PeerStreet

I have been invested with real estate platform Peerstreet now for almost four years. While many platforms have struggled in the real estate niche Peerstreet has been a consistent performer. While they are having their challenges, like most lenders, during this difficult time I have always appreciated their transparency.

Streetshares

As it has been every quarter for the last several years, my top performer is Streetshares. I have been investing in every loan they make available for the past year as they only make a small fraction of their loans available to platform investors. Most of the loans are funded by institutional investors and their own Veterans Business Bonds. It will be very interesting to see how Streetshares performs going forward as the coronavirus takes its toll on small businesses, hopefully just on a temporary basis.

AlphaFlow

I have always liked real estate platform AlphaFlow as they have provided excellent diversification across many properties and regions. But alas, they closed down to individual investors late last year so they are slowly liquidating the portfolio as payments come in.

Money360

The Money360 fund is focused on commercial property. The fund invests primarily in bridge loans in the $3 million to $30 million range for commercial buildings across a variety of property types: office, retail, self storage, hospitality, industrial, multi family, manufactured housing and special purpose. These are 12-month to 36-month loans with an LTV of less than 75% and broad geographic diversification.

YieldStreet

YieldStreet provides access to unique investments that have traditionally not been available for individual investors. They have been in the news a bit in recent months because of a partnership with Blackrock, the world’s largest asset manager, as well as an interesting partnership with Citi. I am invested in such esoteric investments as two container vessel deconstructions, other marine financing for large vessels as well as an art portfolio. These are not the kinds of investments I have seen anywhere else.

Fundrise

Fundrise is a real estate platform focused on the individual non-accredited investor. I opened up my account there four years ago and I continue to be impressed with their consistent returns. I am invested in their Income eREIT fund which is currently invested in 59 projects, primarily multi-family home construction. New investors can get started with just $500 and choose between Supplemental Income, Balanced and Long Term Growth.

Final Thoughts

I have been most pleased with the rebound in my Prosper and LendingClub accounts as returns continued to improve throughout 2019. The companies updated their underwriting models in 2017 significantly and have continued to tweak them since then, favoring a more conservative approach. This should help them weather the coming storm given the unprecedented economic conditions.

One of the criticisms the alternative lending industry has received for many years is the fact that it has never weathered a downturn. Well that is all about to change. I think Q2 of 2020 will be a quarter unlike any other in history. We will see who has not just solid underwriting but who has the broad base of investor support that will allow them to keep on lending. The companies that come through this well will be the new industry leaders but unfortunately I expect many companies to struggle and some will not survive.

Finally, I will highlight my Net Interest number. This is the money that my portfolio actually earned in the past year. With the struggles of my largest holding this number is down significantly from last quarter but at $39,523 it is still well above the lows I experienced in Q2 2018.

As always feel free to share your thoughts in the comments below.

LendingClub Cutting 460 Staff in Response to Reduced Loan Volume

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Back in October last year LendingClub executives ran an exercise where they had to game plan how the company would react to a pandemic. In hindsight, this was a very timely exercise that has helped the company react quickly in today’s unprecedented times.

They were one of the first fintech lenders to issue the work from home order as well as provide the ability for borrowers to self-serve when it comes to loan forbearance. Now, they are one of the first to announce a sweeping round of layoffs.

According to an 8-K filed by LendingClub today the company is laying off 460 people or around 30% of its workforce. A LendingClub spokesman told me that the cuts were across every division of the company as they are adjusting the size of the company to reflect a business environment that is dramatically different from just a couple of months ago.

The C-suite was not spared in the downsizing. Steve Allocca, president of LendingClub for the past three years, will be exiting the company on May 12 as his position has been eliminated for now. Also eliminated is the Chief Marketing Officer so Alexandra Shapiro, who had been in the role for less than a year, will be leaving. With no need to pursue growth marketing costs will be reduced substantially as many paid programs are put on pause.

Additionally, executives are taking a 25% pay cut with Scott Sanborn, CEO of LendingClub, taking a 30% cut. Sanborn said this in a statement:

It’s never easy to lose people who are not just colleagues, but teammates and friends. These are amazing, innovative, and committed people who have helped to build LendingClub into a great company. However, it was necessary to realign our staffing to the current business environment. With these actions, we believe we are well positioned to achieve our long-term strategic goals and better serve our members, who will need us more than ever, once the economy stabilizes.

Origination volumes have tumbled across the consumer lending industry as companies have pulled back in marketing and many institutional investors no longer adding in new capital. On this latter front LendingClub is fairly well positioned given it has worked so hard in recent years to diversify its funding sources. Interestingly, some funding sources have not declined, and some have even increased in volume. I was told that retail investment is actually up which I thought was interesting.

My Take

While initially shocking, it is not that surprising that LendingClub has made this move. With originations down they needed to cut costs and, while painful, a large round of layoffs is essential for any significant cost containment program. The company entered this crisis in a strong financial position with over $500 million in cash on their balance sheet at the end of Q4.

While I have been assured that completing the Radius acquisition is a top priority for the company, if the economic malaise continues for a long time I will be surprised if it stays on track. It is such a shame really, as I felt with this move LendingClub had turned a corner this year and was finally on offense after many years of defense. But now the name of the game is weathering this crisis as the whole world has hit the pause button.

You will be able to learn more on LendingClub’s next earnings call scheduled for May 5. We will be covering that here as usual.

My Quarterly Marketplace Lending Results – Q1 2020

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Many of you have emailed me to ask whether I am still doing these quarterly investment reports. The answer is yes, so here is the latest installment. I have been providing these updates for all my marketplace lending investments since 2011 and I will continue to do so.

Regular readers will notice a significant change with this year’s report. There are several investments that I have decided to discontinue completely so I am separating these out now so everyone can see the returns of all my current investments. But I will still report my overall return for the time being until these investments have been mostly liquidated. I will also be sharing my thoughts on the impact the pandemic will have on this portfolio.

Overall Marketplace Lending Return at 4.93%

My overall returns for the twelve months ending March 31, 2020 was 4.93%. This is down slightly from the 5.12% return last quarter. But what has been quite encouraging is that my LendingClub and Prosper investments continue to improve. Of course, you should keep in mind that these returns are through March 31 so we have seen very little impact of the pandemic. I don’t expect these improvements to continue.

Now on to the numbers. Click the table below to see it at full size.

As you look at the above table you should take note of the following points:

  1. All the account totals and interest numbers are taken from my monthly statements that I download each month.
  2. The Net Interest column is the total interest earned plus late fees and recoveries less charge-offs.
  3. The XIRR ROI column shows my real world return for the trailing 12 months (TTM). I believe the XIRR method is the best way for individual investors to determine their actual return.
  4. Investments that I am liquidating have been separated into the bottom section of the table.
  5. I do not take into account the impact of taxes.

Now, I will break down each of my current investments from the above table grouped by company.

LendingClub

As I said in the introduction LendingClub has improved their returns dramatically since the dark days of 2017 where some of my accounts dipped into a negative return on a TTM basis. Improvements made back then have really been paying dividends. Of course, with the pandemic we don’t expect these returns to continue but so far the consumer is holding up reasonably well. The above screenshot is of my largest LendingClub account that was opened in 2010 with around $53,000, with all payments reinvested since that time. You can see that there is over $2,000 in cash sitting in this account because there are fewer loans made available to individual investors and it has become harder to reinvest all the principal and interest payments.

Prosper

I now only have one Prosper account where I am reinvesting. I have been liquidating my original Prosper taxable account as I focus more of my marketplace lending investments on retirement accounts. My Prosper Roth IRA account has now had six consecutive quarters of at least a 7% return showing consistency in underwriting that will no doubt be tested in the coming months.

PeerStreet

I have been invested with real estate platform Peerstreet now for almost five years and have invested a total of just over $18,000. PeerStreet focuses on short term loans – typically 6-24 months with yield to investors in the mid to high single digits. I like the $1,000 minimum per investment at PeerStreet which has enabled me to feel comfortable starting with a relatively small investment. I have cycled through my initial capital several times already as the payback on many of these loans ends up being less than 6 months.

Streetshares

While small business lending platform Streetshares has been my top performer for many years I am cashing out part of this investment as I am concerned about the state of small business due to the pandemic. While I think they run a great platform there are millions of small businesses that are hurting right now and I am reducing my exposure to this asset class. But I do intend to maintain a portion of this investment so I am not including it in my runoff list.

Money360

The Money360 fund is focused on commercial property. The fund invests primarily in bridge loans in the $3 million to $30 million range for commercial buildings across a variety of property types: office, retail, self storage, hospitality, industrial, multi family, manufactured housing and special purpose. These are 12-month to 36-month loans with an LTV of less than 75% and broad geographic diversification. I am watching this investment closely as the situation in commercial real estate is fluid right now.

YieldStreet

YieldStreet provides access to unique investments that have traditionally not been available to individual investors. I have invested in such esoteric investments as two container vessel deconstructions, other marine financing for large vessels as well as an art portfolio. These are not the kinds of investments I have seen anywhere else. While some of their marine investments are having challenges right now they continue to offer a range of unique investments. They also offer the YieldStreet Wallet, which until recently was earning good interest but it is now at basically zero so I withdrew my cash there. The minimum investment is usually $10,000 for these investments and while I am still interested in new offerings their pipeline has certainly slowed since the beginning of the pandemic.

Fundrise

Fundrise is a real estate platform focused on the individual non-accredited investor. I opened up my account there almost five years ago and I continue to be impressed with their consistent returns. I am invested in their Income eREIT fund which is currently invested in 17 projects, primarily multi-family home construction. REITs are having a tough time right now and so I have decided to trim my holdings here due to the pandemic.

Cadence (New)

Cadence is the first new entrant in my portfolio for some time. But I have been watching them closely since they launched and decided to make a small investment last year. I have since doubled that original investment as I have been impressed with what they are doing. Like YieldStreet these are esoteric, high yield investments and they have a much lower minimum investment, just $500. I have invested in solar financing, motorsports, asset-backed crypto lending and several international deals that I see nowhere else. These deals often pay over 10% interest so I am under no illusions here, these are not low risk investments.

Runoff Investments

This quarter I have separated out the investments that I am in the process of liquidating. I did this because I want to track my active investments more closely as I am no longer reinvesting in any of these runoff investments. I started liquidating my taxable LendingClub and Prosper accounts back in 2018. I discussed the liquidation of my Lend Academy P2P Fund holdings last quarter as we are closing down the fund.

I have also decided to liquidate my P2Bi holdings. The platform has had no new opportunities for investors since last year and given its small business focus I decided to move this money into cash. These are short term loans so the liquidation period here will be quick. Finally, I am also liquidating my AlphaFlow investments but this is not because I am unhappy, instead this is because they have closed down their platform for retails investors.

Final Thoughts

My marketplace lending portfolio is going to be undergoing quite the transformation over the rest of the year. I am moving most of this money to cash as I wait on the sidelines to see how the different platforms perform in what could well be the most severe economic downturn since the Great Depression. With so much unknown it is difficult to make new investment decisions today. Small business lending is clearly going to be impacted and depending on any future stimulus the consumer may be impacted as well.

I am happy to keep reinvesting in my current investments but I am watching everything closely and that could change. I am adding new money cautiously as I feel in no hurry to step back into the market. As an observer and enthusiast the next 12 months will be the most interesting in the history of the marketplace lending industry. One thing that is likely, there will be lots of changes happening and some platforms are probably not going to make it.

Finally, I like to end with the one number I track most closely and that is my Net Interest number. This is the money that my portfolio actually earned in the past year (at least on paper) and at $37,955 it is down from last quarter but still a respectable showing.

As always, feel free to chime in with your thoughts in the comments section below.

Why Peer-to-Peer models fail against oligopoly, with Lending Club shutting down p2p platform, Seedrs/Crowdcube merging, and Morgan Stanley buying Eaton Vance for $7B

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This week, we look at:

  • Lending Club, the peer-to-peer lending innovator, turning off peer-to-peer lending after having a bank in its pocket

  • Consolidation of the UK’s largest crowdfunders, CrowdCube and Seedrs, and their limited economics

  • The scale of the Morgan Stanley and Eaton Vance deal, creating a $1.2 trillion asset manager

  • The struggle of peer-to-peer models more generally, and whether the blockchain movement can overcome the Prisoner’s Dilemma

Fintech earnings begin before Halloween

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It’s earnings season, and it’s a spooky one for some. Here are three public fintechs on the LendIt ticker that posted results this week.

Lending

On Thursday, online lender Enova International posted a $52 million profit on $320 million in revenue, up 57% from the same time last year. In addition, total originations increased 26% sequentially to a record $856 million. Despite the good news, the stock saw only a 4% rise before falling back toward its downward trend this month. 

“We are pleased to again report a strong quarter of growth across all of our businesses,” CEO David Fisher said. “We continued to see rising demand, driven by increased spending as the economy recovers.”

The firm also reported it was cooperating with a CFPB Civil Investigative Demand for alleged issues with its loan processing.

“Working with our regulatory authorities like the CFPB is a critical part of the process of providing financial services, and we look forward to completing the investigation,” General Counsel and Chief Compliance Officer Sean Rahilly said. 

Trading

NYSE: “Bring out yer earnings!”

*Vlad brings out HOOD

NYSE: “That’s not earnings!”

Vlad: “Sure it is,”

Robinhood: “No, it’s not; I lost money. I didn’t earn a thing!”

NYSE looks back and forth

Vlad: “could you…”

*NYSE cracks Robinhood on the back of the head, dropping the price 12% in seconds

Vlad: “… thanks… “

*NYSE throws HOOD on the back of his cart, with all the other earnings

The payment for order flow mobile brokerage app Robinhood dropped in value immediately after posting a $1.32 billion loss on Tuesday. Retail investors that use the app watched as the HOOD stock price dropped 12% in minutes. 

“This quarter was about developing more products and services for our customers, including crypto wallets,” CEO Vlad Tenev said on the earnings call. “More than one million people have joined our crypto wallets waitlist to date.” 

It was not enough for Q3: Investors have soured on the platform despite driving investing madness through GME options trading and a Dogecoin price explosion. Cryptocurrency trading was down significantly, the company reported, compared to Q2. 

For example, while the carbon crypto copy Shiba skyrocketed, Robinhood users were out of the loop: the firm has not added the meme coin. 

Banking

Wednesday, the online bank Lending Club announced record-breaking revenue of $246.2 million, growing 20%. In addition, the firm’s non-PPP loan portfolio grew 25% since June and saw deposits grow 12% to $2.8 billion. Lending Club’s profit came in at $27.2 million, $0.26 per share, up 190% since Q2.

“Our strong revenue and earnings growth trajectory has become evident following our transformation into a digital marketplace bank,” CEO Scott Sanborn said. “Our success continues to be driven by our competitive advantages, including our growing base of 3.8 million members, our exceptional data science capabilities, and our proven marketplace model.”


Facebook pummeling pulls down fintech earnings

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The beginning of February ’22 will be remembered for one thing: Facebook — and the tech market it has come to represent — had a terrible quarter.

The supergiant with a new name dropped more than 24% in a single trading session after missing earnings estimates, the most significant one-day drop for a firm in U.S. history.

What’s more, Meta only missed earnings by $.17 a share and beat revenue for the first quarter by $700 million. Still, a lack of added users, a money sink of more than $10 billion in the new metaverse section of the company, sent the shares careening downward.

Fintech was pulled into the red too. Last week, tech like PayPal, Robinhood, and even Lending Club followed the same trend: fewer subscribers, close but not surprising earnings, ’22 predictions that spooked investors, and revenue that no one cares about if the stock doesn’t pay out.

PayPal: ouch

PayPal saw a “strong finish” to the year in volume and revenue, but not enough to beat estimates. EPS was a single cent lower, $1.11, and revenue was $6.89 billion, a difference of $30 million from expert opinions that sent the stock price dropping like a rock. The news that more than 4 million user accounts were fraud bots created to soak up free promo money did not help the sinking share price.

“Twenty-twenty-one was one of the strongest years in PayPal’s history. We reached $1.25 trillion in TPV and launched more products and experiences than ever before. The future is moving in our direction, and we are investing in our consumer and merchant capabilities to seize the opportunity in front of us,” President and CEO Dan Schulman said in the release.

Enova: This weeks Golden Goose

On Thursday, Enova posted their fourth-quarter ’21 earnings, showing a tremendous jump in revenue and EPS that beat expectations, sending the share price up. The online lender results boasted $363M in revenue, with a 25% jump in organizations from Q3: a record $1.1B. Based on these results, Enova is happily looking forward to another year of new originations and strong credit performance, CFO Steve Cunningham said in the earnings call after market close.

“We skillfully navigated a complex and rapidly changing market environment, quickly accelerating our originations as the economy recovered and helping our customers get access to fast, trustworthy credit,” CEO David Fisher said on the call. “At the same time, we kept a close eye on credit performance, which has remained much better than pre-pandemic levels. As a result, total company originations doubled year-over-year to $1 billion, and total company combined loan and finance receivables increased by 48% to $2 billion.”

Robinhood

The stock-betting PFOF “democratizer of investing” app called Robinhood ended up costing investors money with terrible, negative earnings per share on Thursday, Jan. 27.

Revenue was down to $363M in Q4 ’21, compared to $522M in Q1. A $423 M net loss sent shares tumbling 15% to $9.98, compared to the August high of $85.

Crypto sales, which made up more than half of all revenue on the platform in the past, we’re down to just 18% of the total, and active users peaked in May.

LendingClub

The fintech that became a full-time bank showed a full profitable year for the first time but was not suitable enough for investors.

Nearly a full year after buying RadiusBank, LendingClub showed a revenue of $262.2M and diluted earnings per share of $0.27.

Still, forward-looking statements from the earnings call last week were disappointing, and the stock continues to drop along with the rest of the fintech market.

“I’d like to give a huge shout out to our highly engaged and resilient employee base of LendingClub,” CEO Scott Sanborn said during the earnings call. “Thank you all for a great year, and I can’t wait to tackle 2022 together. We are well-positioned to thrive.”

Here are the Winners of the 2021 LendIt Fintech Industry Awards

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MIAMI, Fla. — On Feb. 8, LendIt Fintech held an award show and dinner at the Lowes Beach Hotel in South Beach Miami for the 5th annual industry awards to celebrate the top fintech influences and innovators. 

The awards event capped off two days of networking, overlooking the beach. In no particular order, these winners are the best of the best, a cross-section of hundreds of nominations submitted from Sept. 21 through Dec. 10, 2021.

Fintech Innovator of the Year: Nubank

The LendIt Fintech award Innovator of the year goes to the company that demonstrated a strong culture of transformation in the past year, producing groundbreaking changes in the industry. This year’s contenders show variety, from newly public neo banks, BNPL, lenders, and commerce ecosystem leaders. 

Unfortunately, Nubank could not be in Miami; instead, a rep from QED, an early Investor in the Brazilian firm, accepted the award in their sted. But, Nubank contributed a video speech in honor of being named a nominee, presented by Arturo Nunez, chief marketing officer. 

“When our founders created Nubank over eight years ago, no one thought it was possible to challenge the status quo of traditional banks in Latin America, and we did it,” Nunez said. “Today, Nubank is one of the largest digital banking platforms with over 48 million customers, in Brazil, Mexico, Colombia. Thanks to our innovative processes and tools, we save customers $4.8 billion in bank fees and help them save about 113 million hours in waiting.” 

Fintech industry awards
fintech awards
Arturo Nunez, chief marketing officer at Nubank, in a video speech accepting the Fintech Innovator of the Year award at the Nexus Dealmakers Conference, in SouthBeach Miami, Feb. 8, 2022.

Phin Upham of Haymaker Capital presented the award. The judges heralded Nubank for finding a solution to the demand for inclusive banking in Lat Am.

“Nubank set out to solve a huge problem and has so far succeeded beyond any expectation,” the judges said. “Their high level of success is a testament to the tremendous need for their products and the company’s ability to deliver.”

Finalists: 

  • Plaid
  • Affirm
  • Marqeta
  • Brighterion
  • Intuit
Arturo Nunez, chief marketing officer at Nubank, in a video speech accepting the Fintech Innovator of the Year award at the Nexus Dealmakers Conference, in SouthBeach Miami, Feb. 8, 2022.

Executive of the Year: Scott Sanborn, LendingClub

Executive of the year is for the senior executive who has demonstrated outstanding leadership, integrity, performance, and team-building within their company.

Sanborn flew in just in time for the awards dinner, joining several colleagues who were already in Miami for the Nexus Dealmakers Summit.

“As some of you in the audience will know, I think I’ve been around as long as LendIt and have seen this industry go through a lot of change,” Sanborn said. “I loved the description up there tonight because Lending Club has been able to change not due to me, it’s been a core group of super-committed people who stay true to this vision of using technology and data to lower the cost of credit. The path we took to get here has been a little windy but I could not be more excited about how we’re positioned today. So thank you, everyone.”

Scott Sanborn, CEO of LendingClub, gave a speech after winning the 2021 Fintech Executive of the Year award on Feb. 8, 2022.

“Among a slate of incredibly impressive fintech executives, Scott stands out for having revitalized the company he leads,” the judges said. “He competes to win, as evidenced by his company’s audacious move, becoming the first US fintech to buy a bank.”

Finalists are a non-exhaustive list from many inspiring execs who do this while contributing to industry advancement.

Finalists:

  • Jennifer Tescher, Financial Health Network
  • Steve Smith, Finicity
  • Jason Wilk, Dave
  • Dave Girouard, Upstart
  • Prashant Fuloria, Fundbox

Fintech Woman of the Year: Luvleen Sidhu

Like the top executive of the year category, but female fintech-focused: The award for the senior executive who has demonstrated outstanding leadership, integrity, performance, and a commitment to fostering gender diversity both within her company and in the industry at large.

Luvleen, in her second time winning the woman of the year, said she was grateful to be a part of the community and to represent BM Technologies this year after acquiring a bank, combining the best of fintech with the best of a banking charter.

“Thank you so much, everyone; you know, standing up here, I think the one feeling that’s falling through is deep gratitude. BM technologies had a wonderful year last year. Taking the company public — one of the first neobank and fintechs to go public to be profitable and to end the year with an announcement to acquire a bank,” Luvleen said. “Most importantly: having colleagues in the room tonight challenging the industry, and the insight, the passion you bring in this industry is such an honor and such an exciting thing to work beside and with you. So thank you so much for making this such a fun ride.”

Luvleen CEO and Founder of BM Technologies, after receiving her second Fintech Woman of the year at the Nexus Dealmakers Conference, In South Beach Miami, Feb. 8, 2022.

“Luvleen provides outstanding leadership, fosters gender diversity, and harnesses wisdom beyond her years. As a public company CEO, she is a leader and role model for many,” judges said. 

Finalists:

  • Jo Ann Barefoot, AIR
  • Wendy Cai-Lee, Piermont Bank
  • Rania Succar, Intuit
  • Stephany Kirkpatrick, Orum
  • Rochelle Gorey, SpringFour

Innovation in Digital Banking: Plaid

As open banking, accessibility, and inclusivity become synonymous with the future of banking, this award goes toward the company that has demonstrated a strong culture of innovation, producing significant advances in digital banking technology in the past year.

Doug Bacon, Plaid.

“This industry giant continues to create groundbreaking technology that enables the growth of fintech,” judges said. 

Finalists:

  • Nubank
  • Current
  • MX
  • Deserve
  • Narmi 

Top Consumer Lending Platform: LendingClub

Consumer lending is as hot as ever, from BNPL, Small-dollar lending, and innovation like early payroll access. This LendIt Fintech award goes to the top consumer lending platform based on a combination of loan performance, volume, growth, product diversity, and innovation. 

Scott Sanborn, LendingClub.

“LendingClub continues to provide value through innovation,” judges said. “Their work in AI explainability is moving the industry forward.”

Finalists:

  • LendingPoint
  • Avant
  • Upstart
  • Earnest
  • Caribou

Top Small Business Lending Platform: SmartBiz Loans

Especially during the pandemic, SMB lenders helped support small businesses while quarantines kept customers away. These top contenders, among many, kept the economy running through successful loan performance, volume, growth, product diversity, and innovation.

Emily Bogan, SmartBiz Loans.

“SmartBiz is helping to rebuild small businesses, crushing it with SBA loans and fast loan approvals,” judges said. 

Finalists:

  • Credibly
  • Biz2Credit
  • Payability
  • Fundbox
  • Reliant

Top Real Estate Platform: LendInvest

At LendIt LatAm, Real Estate proved to be a significant fintech industry trend. This award goes to the top real estate platform based on a combination of loan performance, volume, growth, product diversity, and innovation.

“We love the vision,” judges said. “LendInvest understands all the technicals and is fast becoming a mainstream lender.”

Finalists:

  • PeerStreet
  • Sharestates
  • Point
  • Groundfloor
  • Kiavi (LendingHome)

Emerging Lending Platform: Wisetack

Online Lending has been a cornerstone of fintech since the beginning. The firms nominated for this LendIt Fintech award learn from the past and work toward the future, the award for a young company that demonstrates the most significant potential impact on the future of online lending.

“Wisetack posted impressive growth in 2021 in terms of customers, revenue, team, and funding. They expanded across industries while maintaining high customer satisfaction,” the judges said.

Katya Baron, VP of capital of Wisestack.

Finalists:

  • PowerPay
  • QuickFi
  • SoLo Funds
  • Capchase
  • Grain

CryptoFin: Cross River

A segment of fintech that ignited like wildfire this year, these finalists showed the best application of crypto technology in traditional finance. The winner of this award should demonstrate a vital bridge between traditional finance and crypto to encourage greater adoption.

Eden Hoffman, Cross River.

“These fintech pioneers have been nimble and forward-thinking from the start,” the judges said. “Their Coinbase partnership underscores their ability to move the ball forward with each new innovation trend.”

Finalists:

  • Chainlink
  • Visa
  • Sila
  • Bitso
  • Figure

Most Promising Partnership: Ocrolus & Plaid

In a year of endless consolidation and purchases, these partnerships symbolize that not every firm needs to buy out its competitor. This award goes to the company that has completed and publicly announced an innovative collaboration in the fintech community.

Sam Bobley, Ocrolus.

“We are bullish on this combination: two companies with great reputations driving efficiency and providing value to the end customer,” judges said.

Finalists:

  • New Energy Nexus & Rise, created by Barclays
  • Barclays & Anthemis Group
  • OakNorth & Old National Bank
  • TransUnion & Spring Labs
  • Finicity & Tomo Credit

Top Service Provider: Manatt

Where would fintech be without the helping hands of experts? This award goes to the service provider, law firms, accountants, trusts, etc., that has demonstrated deep expertise, unique value, strong ROI, commitment to clients, and the fostering of a deeper understanding of fintech.

Scott Pearson & Brian Korn of Manatt.

“Service Providers to the fintech industry are exceptional across the board,” judges said. “Manatt differentiated itself with its deep experience, fintech expertise, and impeccable reputation.”

Finalists:

  • Deloitte 
  • Klaros Group
  • Millennium Trust
  • Dechert LLP
  • Goal Solutions

Top Technology Service provider: Amount

Without background infrastructure, fintech is nothing. This award goes to the technology company with the most significant impact on the fintech market.

Kevin Lewis, Amount.

“The future of financial services is reliant on how well we perform the function of “embedded finance,'” judges said. “This is a true leader in that category.”

Finalists:

  • LoanPro
  • Equifax
  • Galileo Financial Technologies
  • Ocrolus
  • Prove

Excellence in Financial Inclusion: Tricolor

As the speakers at LendIt LatAm showcased, Financial Inclusion can be synonymous with success: succeed together or fail apart. This award goes to the company that has made the biggest difference in expanding access to financial services in new and innovative ways.

Daniel Chu, Tricolor.

“Tricolor punches above its weight while solving mobility challenges among the 60 million-strong Hispanic population in the United States,” judges said.

Finalists:

  • Experian
  • OppFi
  • Oportun
  • GoHenry
  • Lili

Emerging Fintech Company: Atomic Invest

New for 2022, this is awarded to the most promising young fintech company in any vertical. Contenders are young, scrappy, and hungry companies with a real possibility of becoming a leader in their category in the years to come.

David Dindi, Atomic.

“Atomic is a cutting-edge company that provides advanced investing features,” judges said. “With a rich API suite that allows banks to democratize access to wealth-building tools.”

The finalists:

  • Percent
  • TabaPay
  • Instnt
  • Kafene
  • ForwardAI

LendingClub posts positive Q2 Earnings

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LendingClub announced Q2 2022 results Wednesday, showing a firm resistance in the face of turbulent markets that sent the stock price up after hours.

They posted revenue of $330.1 million, which grew 61% year-over-year, which the firm’s analyst attributed to net interest income and marketplace revenue growth.

Lending CLub Earnings

Net interest income rose 153% yearly to $116.2 million. The bank’s net interest margin expanded to 8.7% from 5.5% a year earlier, primarily reflecting growth in consumer loans which generate a higher yield.

Total loans held for investment excluding PPP grew 106% from June 30, 2021, which they attributed to growth in personal loan originations. The percentage of originations held for investment rose 27% from 20% in 2021.

Marketplace revenue was $206.4 million and rose 36% year-over-year. Deposits increased 78% to $4.5 billion since June 30, 2021.

Sanborn said as much at USA 2022

On the Fintech Nexus Keynote stage in NYC this May, CEO Scott Sanborn said that despite the doggy market and recession-looking stock prices, things were still strong for LendingClub.

He said the recent volatility does not shake up the relatively healthy consumer debt levels facing housing, healthcare, education, and other expenses.

LendingClub's Scott Sanborn on the keynote stage at the Fintech Nexus USA Conference on May 26, 2022
LendingClub’s Scott Sanborn on the keynote stage at the Fintech Nexus USA Conference on May 26, 2022

“You’re seeing that government support has subsided, and cost of living has been going up and outpacing wages (which have thankfully started to move,)” Sanborn said. “You are already seeing that, especially in more vulnerable parts of the population, kind of back to where they were pre-pandemic.”

LendingClub’s resilience is in the original founding presence: offering the average American consumer products that help them improve their financial standing.

Sanborn said they built the firm on going to consumers to help them pay off their credit card balances. About half of Americans carry credit card balances, and to them, it is “effectively a loan, and a crappy loan.” If credit card rates and balances go up, LendingClub’s business gets better.

“Our primary use case we built the business around was going to consumers who have credit card debt, and saying ‘hey, do this instead, we’ll lower your costs pretty significantly, by about 400 basis points,” Sanborn said. “For us, the growth of credit card balances is a tailwind for our business because it means there are more people we can help.”

LendingClub outlines cautious approach to support long-term growth

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Following a year that eventually led to a cut of 14% of their workforce, it was perhaps unsurprising that LendingClub referenced the challenging conditions in their Q4 2022 earnings call. 

The company continued to see net revenue growth despite the ongoing macroeconomic difficulties. 

“We closed out 2022 With solid results,” said Scott Sanborn, CEO of LendingClub, in the opening remarks. “Both revenue and earnings were near the high end of our guidance range. And importantly, we took action to position the company well to navigate current headwinds.”

LendingCLubs Scott Sanborn at the Fintech Nexus USA Conference on May 26, 2022
LendingClub’s Scott Sanborn at Fintech Nexus USA Conference on May 26, 2022.

“For the full year, we generated 45% revenue growth and a record 290 million net income.”

Deposits had also grown by 104% YOY, and the company had scaled the online banking platform acquired in early 2021. 

However, loan originations were down. Drew LaBenne, CFO of LendingClub, commented that total revenue had remained flat due to an offset created by the 29% decline in non-interesting revenue due to this drop in originations.

Marketplace revenue was also hit and saw a reduction of $47.2 million between 2021 and 2022. The company stated the drop was due to the pace of Federal Reserve interest rate increases and tighter underwriting standards implemented by the company.

Looking Forward

Sanborn took a favorable position looking forward, stating that the company will focus on what they “can control” amid an uncertain economy. 

The focus will be split into three areas. 

  1. “Continuing to manage credit quality through the cycle prudently.” – Sanborn stated that he felt focusing on quality rather than quantity was vital for the company to navigate forward. He explained that the rate environment had continued to put pressure on the marketplace volumes and, as a result, restricted the relative value the company has provided. He noted that the company’s delinquencies had performed above market average due to their cautious underwriting approach. 
  2. “Preserving profitability and maintaining a strong balance sheet.” – Sanborn mentioned the recent “streamlining of operations” and cut expenses. In addition, he explained that the acquisition of an additional extensive portfolio of “high-quality seasoned loans” had bolstered the company’s net interest income.  
  3. “Being practical and focused in our products and technology investments.” – Sanborn explained that the company was slowing down on investment going into 2023 due to the macroeconomic conditions. However, he assured that the company would focus on “putting the building blocks in place” for future investment opportunities in the year ahead. 

In light of the ongoing macroeconomic storm, the guidance for Q1 2023 was cautious but positioned to maintain a trajectory along the three focus points. 

The provision for credit losses going into the new year has been set at $62 million, $21 million lower than Q4 2022. LaBenne stated that this was “primarily due to a decrease in the dollar amount of loan originations held on the balance sheet.”

Pre-provision revenue was set between $55-$70 million, lower than the amount seen in Q4 for both 2022 and 2021, despite a growth of 12% between the two years. 

Guidance for total originations was set between $1.9-$2.2 billion, with the company maintaining its underwriting strategy and focus towards “quality over quantity.”

RELATED: Fintech Ticker Table

New SBA Lending Rules Are Only a Start

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Small business lending is having a moment. On the one hand, you have the tech companies scaling their lending operations (Quickbooks, PayPal, Square, Shopify and Amazon for example), making credit available for their clients more quickly and easily than ever before. On the other hand, you have the Small Business Administration (SBA) making changes to its lending program, making it easier to obtain low-cost financing.

I have written about the former before so today I want to focus on the SBA, the changes they are making and whether we are moving in the right direction here.

Bankrate and The Wall Street Journal both published good pieces earlier this week describing all the changes at the SBA. So, I am not going to get into the details of it here. But I did reach out to a couple of experts on what these new rules will mean for small business.

Kale Gaston, Head of Government Guaranteed Lending at LendingClub
Kale Gaston, LendingClub

Here is what Kale Gaston, Head of Government Guaranteed Lending at LendingClub had to say:

“The intent of the new rules is to allow small businesses to access capital through the SBA programs in a way that is similar to how banks do their non-SBA loans. The idea is to make the process easier for the borrowers to get an SBA loan, especially for loans that are under $500,000. In theory, this could improve the ability for small businesses to obtain capital through the SBA programs.”

Gaston was also quoted in the WSJ article as being concerned that the new rules could lead to some lenders making loans that aren’t prudent.

Expansion of the SBA 7(a) program

While Ryan Metcalf, the Head of U.S. Public Affairs for Funding Circle was also generally supportive of the new rules, he had a lot more to say on another change the SBA is making. It is ending the 40-year moratorium on new licenses for their popular 7(a) lending program. Ryan had this to say on the expansion of that program:

Ryan Metcalf, the Head of U.S. Public Affairs for Funding Circle
Ryan Metcalf, Funding Circle

“With more than 50% of small businesses experiencing funding gaps and more than 50% of banks imposing stricter lending standards, there are serious and growing gaps in access to credit for American small businesses. As with most things, these gaps disproportionately affect minority communities. 

Numerous studies confirm the integral role that Fintech SBL platforms play in supporting small businesses by creating a more inclusive financial system including the most recent study by the Philadelphia Federal Reserve and Bank for International Settlements which concluded that Fintech lenders are “increasing access to capital at a lower cost for small businesses who are less likely to receive credit from traditional banks…” and “predicting future loan performance more accurately than the conventional method to credit scoring, leading to better loan performance”.

The SBA decision to remove its 40-year moratorium on licensing more SBLCs is long overdue because the market is not sufficiently serviced by only 14 SBLC’s or the other relatively few banks or credit unions that participate in the program and who primarily only make loans averaging between $500k-$1m. SBA needs lenders in the program that specializes in loans under $150,000 which is exactly the market Fintech lenders serve.”

Of course, as a fintech enthusiast, I agree with many of the points that Metcalf makes here. Not everyone is in agreement, though. Gaston, who works for a fintech lender with an existing SBA license (courtesy of LendingClub’s acquisition of Radius Bank), was dubious about the benefits:

The idea of bringing in more lenders into the program is always a good plan.  However, it appears the rules for the new lenders are less onerous than for existing lenders and this could bring undue risk to the program if these lenders are not required to abide by the rules and regulations that existing SBA lenders are required to follow.

No, we don’t want any more fintechs at the SBA

There is even a push in Congress to disallow the SBA from adding new fintech lenders. New legislation put forward by Senators Cardin (D-MD) and Ernst (R-IA) called the Community Advantage Loan Program Act of 2023 has passed out of committee on an 18-1 vote. There is concern among lawmakers about the SBA’s ability to regulate non-bank lenders.

Now, the industry associations are not taking this lying down. A group of trade associations authored a letter in response to this bill, arguing that it would create unnecessary burdens on fintech lenders by subjecting them to tougher requirements than all other SBA lenders.

Let’s take a step back for a minute. Access to low-cost credit is vital for small businesses and the SBA is usually the best option when it comes to cost. But the burden on the small business owner can be ridiculous. Fintech Nexus went through the bank application process ourselves late last year as we sought a low-cost loan to fund future growth.

After dozens of hours of work and hundreds of pages of documents, we were denied the loan, despite being a profitable business with a 10-year track record. Our revenue was too volatile (they simply didn’t understand the events business). What an utter waste of time that was.

It became clear to me that it is the process that is completely broken. Even if we had been approved the time and effort involved is barely worth the low cost. I compare this to heading over to Quickbooks Capital where there are literally no document requirements whatsoever, the application takes minutes and approval is received in just seconds. Now, the cost is higher but for busy entrepreneurs the appeal of tech-enabled lenders is clear.

I laughed out loud when I saw this quote in the WSJ article from Tony Wilkinson, chief executive of the National Association of Government Guaranteed Lenders when talking about the SBA and the need for any kind of new rules:

“Our system is not broken. I don’t know what they are trying to fix.”

Clearly, he has not spoken to many small business owners applying for an SBA loan. And it makes me wonder if he has spent any time with fintech lenders lately.

I have been a small business owner my entire career. Access to funding to grow a business is always a challenge. The amount of time wasted applying for loans is a disgrace. We are almost creating a bifurcated system with banks on one side and fintechs on the other. One is a terrible experience but low cost, the other is a great experience but higher cost.

It would be better if banks and the SBA could learn from the experience of tech-enabled lenders to create a truly better system. The SBA is trying but there is still so much more to be done. We are still a long way from small business utopia as described by Karen Mills in her 2019 book.





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