Loan Supermarket: Taking on LendingTree

SuperMoney personal finance

The traditional bank with limited financial products has given way to a financial supermarket where consumers are spoilt for choice. But hundreds of options also leave them feeling clueless. When it comes to financial decisions, it becomes imperative to have in-depth knowledge about the pros and cons of all the products that are available in […]

SuperMoney personal finance

The traditional bank with limited financial products has given way to a financial supermarket where consumers are spoilt for choice. But hundreds of options also leave them feeling clueless. When it comes to financial decisions, it becomes imperative to have in-depth knowledge about the pros and cons of all the products that are available in the market. Though there are many platforms focused on selling financial services and products, few concentrate on truly helping people make better financial choices. Sensing the opportunity, Miron Lulic launched SuperMoney with the goal of helping “people make smart financial decisions.”

SuperMoney was launched in 2013 in Santa Ana, California. Lulic, founder and CEO, is a serial entrepreneur who is passionate about technological innovation. Prior to this, he founded LoanNow and Swagsy and worked as VP at a tax resolution firm. SuperMoney has no outside investors. Lulic himself has pumped almost $1 million into the business. He does not want to raise capital until the company achieves meaningful scale.

SuperMoney’s Humble Beginnings

When Lulic started SuperMoney, it was nothing but a small personal finance blog. Taking a cue from the Yelp business model, he built a similar platform for personal finance. Using an advanced algorithm, it ranked financial products and companies on multiple parameters. But by 2016, the platform started generating serious traffic, especially for personal loans. Then, in 2017, SuperMoney launched a loan offering engine.

The underlying principle behind SuperMoney is to provide financial transparency and help people make better financial decisions. It has partnered with a handful of lenders, and by using real-time APIs the company scores and rank products offered by those lenders on various parameters, such as origination fees, repayment costs, APR, and more.

SuperMoney’s Technology and Business Model

Since startup, SuperMoney has diversified into several verticals including personal lending, auto loans, student loans, and business lending. It sells clicks as well as leads, but it’s mainly focused on a performance-based advertising model. As such, it only gets paid when advertising partners are successful. The company charges by the loan.

The underlying technology is developed in-house and uses a proprietary segmentation system. SuperMoney has built its own weighted sorting algorithm based on attributes such as user review score, average revenue, and more. This means it is able to store tons of attributes from different lenders and help narrow the target audience for each loan offer. Its partners do not influence ratings and offering decisions. Rather, SuperMoney provides data that helps consumers make better financial decisions for their situation.

With the help of a soft credit pull that does not affect the consumer rating in any way, SuperMoney pre-approves the consumer for multiple offers they can then compare, and pick the best one.

What Differentiates SuperMoney From the Competition

Most consumer finance platforms providing similar services make a profit selling leads to the highest bidder. SuperMoney is more transparent. Instead, it calculates the total repayment cost, interest expense, origination fees, and other lending parameters for the consumer. It directly integrates with all its partners via APIs, which helps give consumers a better perspective in terms of cost associated with each product. This ability to offer apples-to-apples comparison in a clear and transparent manner is the hallmark of the marketplace.

The platform has tasted major success in recent years, and its organic search results have grown exponentially. SuperMoney currently witnesses nearly 1 million visitors per month.

Last April, it launched its personal loan engine and has received financing requests topping $400 million, with close to 1,000 personal loan applications per day. The personal loan has quickly become its biggest vertical. In August 2017, SuperMoney ventured into auto loans. It is also looking at the mortgage space and other niche verticals for future expansion.

Comparison to LendingTree

LendingTree is SuperMoney’s biggest competitor. An online lending exchange that connects consumers with multiple lenders, banks, and credit partners, it is not a direct supplier of loans, but a broker. Their core business model is selling leads to lenders. Lulic believes this is bad for consumers as they are deluged with dozens of tele-callers hawking their products.

SuperMoney is different. It does not let lenders contact the borrower unless the borrower has moved ahead with an offer. Its performance-based model enables them to align interest with end users and partners in a more fruitful manner. Even its marketing strategy is different from other platforms; SuperMoney concentrates on content marketing believing in “quality over quantity.”

Future Trends in Consumer Lending

Lulic believes the industry will witness a prolonged consolidation phase in order for market dynamics to settle. Strong performance of platforms like Golman Sachs’ Marcus will give the banking community self-belief to bring their own direct ventures into this space.

Moving forward, the big solution will be focusing on underserved niches. One such initiative is a dealer financing solution. Lately, a lot of traction has been witnessed in home improvement loans. SuperMoney wants to focus on individual contractors like roof installers, pool installers, and other service providers who do not have good financial solutions at their disposal.

Specialty financers available in the consumer lending space charge high discount rates from contractors, and that has had a ripple effect on contractor’s charges inching higher. To tackle this problem, SuperMoney tweaked its loan offering engine framework to launch a dealer-financing solution with a co-branded landing page. This will help contractors receive multiple competitive offers. It has tested the prototype with 100 dealers and further plans to move into other verticals like elective medical, funeral homes, legal service providers, and more.

SuperMoney also wants to strike additional partnership with banks, add more partners to its marketplace platform, and include dealers for the home improvement space. It is looking to collaborate with a wide variety of financial institutions and financial service providers. If everything goes according to plan, it will raise fresh capital in 2018 to fuel its growth.

Conclusion

The company has laid the blueprint to become one of the leading financial service research tool providers. By venturing into a variety of verticals, SuperMoney has made clear it has big ambitions and wants to become the premier go-to-resource for personal and business finance decisions.

Author:

Written by Heena Dhir.

The Rise of UK Institutional Peer-to-Peer Lending

institutional lending

Institutional involvement in UK Peer-to-Peer lending remains low relative to the US, where institutions represent more than two thirds of the market. In 2015, institutions represented just 32% of consumer lending by total volume in the UK and just 25% and 26% of real estate and business lending respectively. So, why might this be? Well, […]

institutional lending

Institutional involvement in UK Peer-to-Peer lending remains low relative to the US, where institutions represent more than two thirds of the market. In 2015, institutions represented just 32% of consumer lending by total volume in the UK and just 25% and 26% of real estate and business lending respectively.

Source: 2015 Nesta Report

So, why might this be? Well, it’s fairly normal for institutional involvement to remain fairly low in the early stages of a new sector. On the most basic level, new sectors are simply not large enough for institutions to invest in, as they often require the ability to write large tickets, in the tens of millions, while also ensuring that they do not represent too large a proportion of a particular provider/platform. Also, until the sector gains the stamp of approval from the regulators and has a decent track record, those in charge of an institution’s wealth are simply unwilling to put their necks on the line for it. Instead, they’d rather invest in well-known, blue chip asset classes which their peers are all invested in too. There’s much less chance someone will get fired for those investments if they get into trouble. Furthermore, the P2P lending ecosystem is still in its early stages, which means that access to independent research and adequate due diligence tools are largely unavailable.

But, the sector is poised for change, and institutional involvement is growing. According to Nesta, in 2013 just 11% of P2P platforms reported some level of institutional funding. By 2015, this had increased to 45%. If we look at the big 3 platforms, which have the scale to accommodate institutions, this trend is certainly clear. Prior to 2014, these platforms had little to no institutional involvement, but institutional lending has increased significantly since then.

Institutional Lending (as a % of total volume)

Source: Orca Analysis and Assumptions. Data unavailable for Zopa in 2017

One of the key milestones for institutional involvement in P2P lending was the involvement of the British Business Bank. The British Business Bank is a UK Government-owned economic development bank established to increase the supply of credit to small and medium enterprises as well as providing business advice services. It has so far invested £135m through a number of P2P platforms including Funding Circle, through which it has invested £100m, Zopa, RateSetter and Market Invoice.

Additionally, there are a number of investment trusts available to investors which raise predominantly from institutions when they launch. Some of the larger investment trusts include P2P Global Investments (£730m), VPC Specialty Lending (£310m) and Ranger Direct Lending (£140m). Institutions have been attracted to these trusts thanks to their promise of high yields in this low yield environment and the belief that the teams involved have the skills to construct the best performing portfolios. Some of these investment trusts ran into a bit of trouble in 2016 when many began to trade at a large discount to NAV (>20%), having previously traded at a premium. Such price to NAV swings can be driven by numerous factors. Although it is likely that lacklustre performance of the underlying loans are a large contributing factor to declining sentiment, other short-term considerations are likely to also be at play. Some short-term explanations were provided by Cormac Leech, a principal at Victory Park Capital, who felt accounting quirks and Brexit / sterling weakening were causing the discount and that that these issues would be ironed out over time. Indeed, since the end of 2016, many of the discounts of the large investment trusts have narrowed by half.

Is this a good, or a bad, thing? There are a few different perspectives to take. Theoretically, institutional involvement is a great thing for borrowers, lenders and aggregators alike. Institutions mean more capital for lending, which in turn helps to grow the sector and stabilise the businesses of the platforms. Institutions help to also raise awareness with other investor groups, thus helping even more capital to flow into the sector. As platforms become larger and more profitable, we may also see cost savings passed on to investors.

This all sounds great, but there are a few snags to be aware of. Relying too heavily on institutional investors may cause investor concentration on the platforms, which leaves platforms vulnerable to being destabilised by just one investor withdrawing. Zopa and Funding Circle have both stated their commitment to retaining a diverse mix of investors, including retail, institutional and government funding. An issue that some of the larger platforms are already facing is that they are struggling to originate enough borrowers to keep up with the supply of lenders. This can cause issues for retail investors, as platforms may reject capital from retail investors (as Zopa has previously done) or platforms may be encouraged to take on riskier loans. The FCA recently stated that they were concerned about potential conflicts of interest that may be created by institutional involvement. The main concern here is that institutions may be able to cherry-pick deals to the detriment of non-institutional investors.

Another issue to be flagged is whether heavy institutional involvement undermines the social purpose surrounding P2P lending (i.e., finance ‘for the people, by the people’), which perhaps undermines the differentiating factor associated with the sector. While this is true to some extent, particularly in P2P equity crowdfunding and donations, P2P lending should ultimately be viewed as an investment opportunity which offers attractive yields with diversifying benefits in a well-constructed portfolio.

There may be some concerns but, on balance, institutional involvement should be seen as a positive sign for the P2P sector. So long as P2P participants remain well-versed on the risks involved and the FCA implements the necessary rules, institutions can help P2P lending to mature and grow in credibility.

Author:

Samantha McBride is a Director at Orca, which provides investors and financial advisors with the research required to perform in-depth due diligence on peer-to-peer investments. Samantha gained her Law degree in 2009 from the London School of Economics and has worked in financial services for the last eight years. Samantha began her career in mergers and acquisitions, working as an Investment Banking Analyst for both Nomura and Deutsche Bank, before moving into Investment Management. Prior to joining Orca, Samantha worked as a Senior Investment Associate at Partners Capital, a global outsourced investment office, and, most recently, a Portfolio Manager & CCO at Elm Partners, a quant-driven, low-cost investment manager.

Taking Over Where Banks Fall Short

Taking Over Where Banks Fall Short

Banks are not equipped to lend the way small platforms are, and a lot of platforms are hamstrung by the regulatory environment. Monroe Capital, LLC, launched their specialty lending vertical a couple of years ago to provide funding for other lending platforms. Aaron Peck, managing director and co-head of the Specialty Finance Vertical, said four years ago […]

Taking Over Where Banks Fall Short

Banks are not equipped to lend the way small platforms are, and a lot of platforms are hamstrung by the regulatory environment. Monroe Capital, LLC, launched their specialty lending vertical a couple of years ago to provide funding for other lending platforms. Aaron Peck, managing director and co-head of the Specialty Finance Vertical, said four years ago the company had two specialty finance vehicles designed to meet the needs of those platforms. Now, they have 11, and all of them are current yield.

“That’s rare for a fund,” Peck said, “but we look at performance. A publicly traded vehicle pays 90%, so we are trading quite well. All our funds pay hefty dividends.”

Since 2004, Monroe Capital has been a lower mid-market lender, providing funding for businesses with $3 million to $30 million in cash flow. Headquartered in Chicago, they’ve managed more than $4 billion in assets through origination offices in Boston, New York, Atlanta, Dallas, San Francisco, Los Angeles, and Toronto. Their specialty finance division, however, is not a typical marketplace lending platform; rather, they see themselves as a hybrid model looking for growth capital. Peck is one of nine partners.

How Specialty Finance Works at Monroe

Monroe’s typical customers are diverse: near-prime and sub-prime consumers, small businesses, pre-settlement litigation finance, medical receivables, sub-prime auto, structured settlements, and medical royalty. They usually look for platforms with a longer history and lower finance rate and can scale up to $200M for an individual company.

“Banks max out at 80%,” Peck said, “but we can go deeper, so the platforms have to raise less equity.”

For example, a small business looking for capital to put up a warehouse facility approached Monroe. They had a track record and could put up equity (in a pool of assets) enough to support the warehouse up to $100M. “We looked at loss rates to see what we thought was sustainable,” Peck said. “We did a detailed analysis of third-party data with our tech-enabled underwriting and became comfortable that full legal and regulatory due diligence were performed.”

Once Monroe does all that, they get back to the company and set up the SPV structure. This sets up unique criteria the platform needs to meet based on its business model. If it comes out of compliance, which is rare, they can take assets to get their money back because it traps cash in the vehicle to protect the loan.

“We don’t approve individual loans,” Peck said. “We support the platform and let them do what they do best.”

Looking for Platforms That Fund Their Own Assets

Monroe is very interested in the technology aspect of any platform they fund. That’s why they stick with those that can fund their own assets.

“If you don’t have tech, it challenges us to believe you can grow,” Peck said. “On our side, tech-enabled lending makes sense. It’s difficult to scale without it. It won’t completely replace the human underwriter, and key underwriting elements will always be key underwriting elements. But technology makes it quicker to provide data so good decisions can be made.”

Monroe has dedicated an entire team to this aspect of their business hoping it will grow. As the marketplace lending industry grows bigger, there will be more opportunities for Monroe to choose platforms that can meet their criteria.

Authors:

Written with Nicki Jacoby.

Allen Taylor