- Today’s main news: 2017 Forecast of MPL ABS volumes.
- Today’s main analysis : Discussion, ahead of Q3 Lending Club results, of present data and expectations. Lending Club’s PPT presentation where they announced and discuss auto lending.
- Today’s thought-provoking articles: A Marketplace critic supported by PwC’s denovo quarterly report.
- A weekly summary of the MPL space from the Wall Street point of view of PeerIQ. The take away : there is 70% chance the FED will raise rates. You will read below more on Lending Club’s new auto product.
- 2017 Forecast of MPL ABS, also from Peer IQ. Extremely interesting and a must read. The takeaway : the market is expected to grow at 47%, forecast supported by a very believable analysis.
- Crowdfund Insider comments on Ron Suber’s article we published last week on the future of MPL.
- A Marketplace critic supported by PwC’s denovo quarterly report and focused on the rise of delinquencies.
- Ahead of the Q3 Lending Club results, a very well written analysis on Lending Club with great data. Note the chart with the rise in delinquencies. A must read to understand the rise of delinquencies, origination volume, and profitability.
- Lending Club’s PPT presentation where they announced and discuss auto lending.
- Korea to become a fintech hub. GP ” I strongly believe this will be the case, as I’ve seen Korean volumes in other financial sectors demonstrate Korea is a serious financial hub.”
- United States
- Weekly PeerIQ newsletter, (Email), Rated: AAA
- 2017 Forecast by PeerIQ, (Email), Rated: AAA
- Ron Suber: “Victory Goes to the Ones Who Change and Adjust”, (Crowdfund Insider), Rated: A
- Can better products and lending practices heal marketplace lending’s hangover?, (Tradestreaming), Rated: AAA
- Lending Club’s Third-Quarter Earnings Release: A Preview, (Seeking Alpha), Rated: AAA
- Here is the Lending Club Presentation Where They Introduce Auto Loans, (Crowdfund Insider), Rated: A
- United Kingdom
- Ex-FSA head: maturing P2P industry could cause regulatory headaches, (CityAM), Rated: B
- Korea to become next fintech hub, (Korea Times), Rated: A
- Canadian P2P Lending Loop open for business, (Bankless Times), Rated: A
- China’s Loosely Regulated Online Lending Has Inspired an Army of Freelance Debt Collectors, (Fortune), Rated: A
Weekly PeerIQ newsletter, (Email), Rated: AAA
2017 Forecast by PeerIQ, (Email), Rated: AAA
- We start with consumer demand. We observe re-leveraging of consumer credit post-2011 and conclude that consumer demand for loans will continue to expand in 2017.
- We predict continued demand for short duration MPL ABS bonds given i) elevated interest rate risk and potential steeper yield curve for fixed-income investors, and ii) the favorable relative value of MPL ABS to other credit spread products.
- We build a bottoms-up framework that examines the pace and size of deal activity across repeat issuers to forecast 2017 ABS volumes under a base, bear, and bull case.
- Finally, we observe that ~55% of loans were funded via the ABS market in 1H 2016. We use an assumption of 50% funding via ABS to back out total MPL originations.
MPL ABS Issuance to Grow Approximately 47% YoY for 2017
Looking ahead to 2017, we believe that the MPL ABS new issuance market will continue to be dominated by repeat issuers, such as SoFi, Marlette, Avant, Earnest, CommonBond, and others.
Ron Suber: “Victory Goes to the Ones Who Change and Adjust”, (Crowdfund Insider), Rated: A
In a recent article on Lending Times, Suber highlighted 5 lessons learned during 2015:
- We can’t do it alone
- You better have awesome partners
- Focus on what’s critical on your path to success
- A reputation takes years to build, but minutes to tarnish
- Victory goes to the ones that change and adjust
But the fact of the matter is that online lending is based on a simple premise of providing a better service, at a lower cost, while delivering higher returns for investors. While some observers are of the belief the industry is not sustainable because they aren’t banks (and don’t have deposits), the industry continues to evolve, adjust and improve – addressing challenges head on.
Loan originations are growing again. Online lending is not a static industry but fairly agile and, if Orchard is correct, “things appear to be getting back on track”.
“While it’s now clear that all press is not good press, 2016 was a year of complete industry education, awareness, and understanding (EAU). 2017 will become the year of platform profitability, ubiquity and secured permanent capital for the leading online providers of credit to consumers, small business, mortgage, student and real estate loans.”
Can better products and lending practices heal marketplace lending’s hangover?, (Tradestreaming), Rated: AAA
In 2016, the trend reversed. For Lending Club, total originations for Q2 2016 came in at $1.96 billion, down from a peak of $2.75 billion in Q1. In 2Q15, Prosper reported a steep decline of over 50% in originations compared to same period a year before.
The hype can be clearly seen in PwC’s DeNovo quarterly report, which tracks fintech trends. Marketplace lending was the top trend for the first three-quarters in 2015 but dropped to the second-largest trend in 4Q15. In 1Q16, the industry did not even make the top 10.
The repercussions of such action are now visible with a rise in delinquencies and a damning report from Moody’s questioning the viability of the asset class. “Investor overreacted to that news,” said Wu, adding that the 2015 vintages are hurting current performance, overshadowing newer and better vintages that will generate long-term growth and returns for investors.
Marketplace lenders are at a crossroads. The resulting shakeout, however, might prove to be beneficial to the market.
“Investors are getting more realistic about returns, and platforms are getting more realistic about what they can get away with. They need to come back and offer products that are compelling for investors,” Wu concluded.
Lending Club’s Third-Quarter Earnings Release: A Preview, (Seeking Alpha), Rated: AAA
Lending Club guided investors to a 3Q loss of -$15M to -$30M.
This may be optimistic, as originations likely shrunk from $1.9B to $1.5-$1.75B.
The company is likely to announce an adjusted loss of $20-$40M.
In a previous article, we noted that Lending Club had several chores ahead of it in order to win back investor confidence.
Demonstrate to regulatory authorities that fraud had not spread throughout the company
Immediately adapt company expenses to match the lower revenue growth expectations
Shore up note investor confidence in the company’s efficacy and underwriting
On Auto Loan Refinancing
Lending Club began as a way for consumers to obtain non-secured loans. The auto loan refinancing business represents a move into secured assets and puts further distance between Lending Club and the retail investors it once relied upon. The company noted that most auto dealers place a 1-3% surcharge on top of the loan that is backed by the bank, and the competitive advantage of the auto loan refinancing is that the company will be able to offer lower rates by cutting out the middleman.
In their statement, we noted that loan servicing is outsourced. With no ordination fee charged to borrowers and no servicing fee charged to lenders, it is unlikely we will see these loans on either the whole loan market or the fractional market. Either Lending Club will remain a balance sheet lender, or it will securitize the loans and sell them in batches to institutional investors.
Here is the Lending Club Presentation Where They Introduce Auto Loans, (Crowdfund Insider), Rated: A
On one of the slides, Lending Club itemized their four verticals today:
Lending Club will announce Q3 results on November 7th at 8AM ET. Perhaps we will learn more at that time.
Ex-FSA head: maturing P2P industry could cause regulatory headaches, (CityAM), Rated: B
Although Lord Turner said that peer-to-peer lenders are “a useful part of the system” he cautioned that regulators should be concerned by any move towards complex securitisation – when debts are packaged together as financial instruments to be sold on. The “real flashing red light” would be the emergence of instruments such as structured investment vehicles (SIVs), he warned.
Korea to become next fintech hub, (Korea Times), Rated: A
Korea is at the initial stage of embracing fintech, compared with other industry-leading marketplaces such as the United States or the United Kingdom,” the 31-year-old CEO said in an interview.
“But the fintech market here is getting more activated and popularized, as Korea is on a path to deregulate for emerging fintech business,” he said. “In the U.S. and China, the fintech market is growing fast, due to their open environment toward regulations.”
“Korea has tight and centralized financial information management infrastructure, which is why I believe the nation will become one of the world’s most influential fintech powerhouses,” he said.
“We collected some 800,000 big datasets in Korea to analyze investment patterns of each investor,” he said. “The big data allowed us to create a ‘recommended algorithm’ for investors. This is then used to create a more specific and personalized investment portfolio for them to reinvest on our platform.”
LENDIT is currently the nation’s top-tier P2P lending operator. The company has grown rapidly to have lent a total of more than 21 billion won in just 18 months after its foundation in March last year.
Canadian P2P Lending Loop open for business, (Bankless Times), Rated: A
Toronto-based Lending Loop, a platform connecting small businesses in need of financing with Canadian investors, is open for business after completing its registration with the Ontario Securities Commission and additional regulators. It is available in every Canadian province except Quebec.
Founders Cato Pastoll and Brandon Vlaar launched Lending Loop in late 2015. The registration process to become an exempt market dealer began this March.
China’s Loosely Regulated Online Lending Has Inspired an Army of Freelance Debt Collectors, (Fortune), Rated: A
Chinese news website The Paper reports that hundreds of groups of freelance debt collectors have emerged on Chinese social media, dubbing the phenomenon a”gray chain of debt collection.” Users in these groups would share “best practices” from bombarding borrowers with frequent phone calls to posting public notices around their homes or even swarming them with “beggars,” practices that a Chinese lawyer told The Paper could veer into illegal territory.