Day One at Bank Innovation 2015: A Focus on the Future of Fintech

This post has been superseded at finovate.com.

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“That’s a word you use with your enemies,”

Ripple Labs CEO and founder, Chris Larsen, on the term “disruptor”

After two days at Bank Innovation 2015, I’m starting to believe that the fintech industry might be settling into, if not maturity, then at least a pretty responsible young adulthood. And it all has to do with the concept of disruption.

A few years ago, for example, a panel discussion among startups on the future of banking might have sounded very different from what I heard at Bank Innovation’s event in Seattle this week. My takeaways?

  • Startups are as interested or more in working with financial institutions as they are in trying to replace them.
  • Startups recognize their limitations as emerging businesses in an industry with many incumbents.
  • Startups are aware that their innovations are the first step in a loop of experimentation and collaboration that involves technologists, financial professionals and consumers.

Doug Lebda, founder and CEO of Lending Tree seemed to speak for many presenters when he insisted “we’re all in this together” during his fireside chat Monday morning. For all the talk of disruption and creating beautiful customer experiences in the tech world in general, today’s fintech startups begin their focus on the future with challenges as practical as reducing friction.

As Lebda put it when asked about the next innovation in the space by a member of the audience: “Ease of transaction. Period. Full stop.”
Fintech Disruption, What’s Your Function?
That’s not to say that Bank Innovation 2015 lacked in the old-fashioned, concept-from-another-planet, disruption department. Ripple Labs CEO and founder Chris Larsen’s off-hand remark about micropayments between self-driving cars sent a palpable buzz through the room – and through Twitter at #BankInnovation15. But it was his lucidity on the role cryptocurrencies are likely to play in the real world that was worth the price of admission.

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Larsen’s vision is of an “Internet of value” similar to the “Internet of information” or “Internet of data” that we have today. Cryptocurrencies will be key to this ability to exchange value, Larsen believes. But in the same way that the Internet of information was built by institutions – from government to academia – the Internet of value will be built not by consumers, but by what he called “custodians of value.”
“You don’t have to change the bank’s role or Visa’s role,” Larsen said. He sees Ripple as a “giant pathfinding algorithm for value exchange” that can improve on the current system of correspondent banking by providing financial institutions with real-time settlement, and “atomic,” “go/no go” transactions that are end-to-end traceable.

Startups Help Banks Get Better 

Technology will always seek to deliver innovation faster than finance can integrate it, as nCino CEO Pierre Naude suggested in the conversation on the future of banking. Bitreserve CEO Halsey Minor added that there was a time when he “didn’t think banks would have to deal with innovation.”

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But to the extent that technology helps banks and other FIs become better at “core competencies” and reduce friction the more likely the relationships and collaborations are to be valuable for all involved.
In this way, financial institutions can serve as what iQuantifi CEO Tom White called “advice drivers” just as well as startups can prod FIs toward greater efficiency and serve as testing grounds for new approaches to everything from credit decisioning to customer engagement.
So if banks are getting back to basics of lending, payments and savings, as CBW Bank chairman and CTO Suresh Ramamurthi suggested, there are fintech startups helping make that happen. Alternative lenders are white-labeling products for FIs to sell to their customers, as Lending Club’s Andrew Deringer, VP, Head of Financial Institutions Group, pointed out, opening up new cross-selling opportunities. Funding Circle co-founder and U.S. managing director, Sam Hodges highlighted the “massive need for small business financing” and the role played by startups able to look at risk differently.

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This argument was echoed by Emmanuel Marot, CEO of LendingRobot who talked about the development of niche marketplace lending alongside new niche markets. All it helping move small businesses up the chain toward the kind of loans banks are interested in and able to profitably make.
It also is about providing better service, something that in the lending business goes all the way to the individual loan officer, as Lebda explained during his Fireside Chat session. “My best loan was when people came up and really talked to me,” he said in response to a question about emotional banking, a theme that would heard more than once at Bank Innovation.
“This is the future.,” added LendKey CEO and founder Vince Passione. “No more waiting. Not just shopping but getting it completed. Not just the coupon for the car. But the coupon for the financing.”
Finovate Alum Wins DEMOvation Challenge

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Congratulations to Tom White and the team from iQuantifi. iQuantifi took home Best in Show honors as part of Bank Innovation 2015’s DEMOvation event Tuesday morning. Also participating was authentication specialist and fellow alum, AuthenticID.
DEMOvation featured six companies
each providing a brief, eight-minute demonstration of its technology. Attendees voted for their favorites via Bank Innovation 2015’s mobile app. Read more about the DEMOvation challenge here.

More observations from Bank Innovation 2015 coming Friday.

FT Partners Publishes Post-IPO Profile of Lending Club

This post has been superseded at finovate.com.

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Now that the dust has settled on fintech’s biggest startup IPO ever, FT Partners has put together an extensive profile of Lending Club. Lending Club’s IPO last year was one of the major events that helped put fintech in the headlines of not just technology news, but business news, as well. And FT Partners’ report so far serves as the definitive document on just how the alternative lender did it and gives clues to what comes next.

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The data-rich, 60-page document focuses mostly on Lending Club, though small business lender, OnDeck, is also covered. The review of Lending Club before, during, and after its public offering includes industry reaction as well as summaries of analyst coverage.
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Key milestones in the rise of Lending Club are shown graphically, from its launch in 2007, through the company’s first $25 million institutional investment five years later. An industry timeline shows Lending Club’s place in the evolution of the alternative lending market (interestingly contrasted with a graph of the U.S. 10-year Treasury yield).
The report discusses Lending Club’s competitive strengths, opportunities for growth, and includes seven pages of loan statistics and another nine pages of financial analysis focusing on revenue and revenue comparisons.
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Perhaps my favorite part is the 16-page section “Selected Alternative Lending Transactions.” Looking at the variety of financing, M&A, and other transactions in both the consumer and small business markets provides a robust sense of the history and diversity of the alternative lending space.
The full report is available here.
Financial Technology Partners is an investment banking firm dedicated to the financial technology sector. The company was founded by Steve McLaughlin and is headquartered in San Francisco, California.

Lending Club Pilots Program to Provide Low Interest Financing to Google Partners

This post has been superseded at finovate.com.

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When you combine Lending Club’s entry into small business lending last March with its investment from Google in May of 2013, add in a successful IPO last December, what do you get?

A partnership with Google Partners.

Lending Club announced yesterday it is piloting a program that will enable Google to invest its own capital in its network of 10,000 partners by purchasing their loans. This differs from Google’s other investment arms, Google Capital and Google Ventures, as the partner investment program will offer capital without taking equity.

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The partner network consists of resellers, consultants, and system integrators that help Google distribute its applications and services. To be eligible for funding, Google partners must be based in the U.S. and meet certain requirements. Qualifying partners can get loans of up to $600,000 for a two-year term.

This six figure amount is double the $300,000 cap that Lending Club typically places on qualified small business borrowers. Also, while the interest rate for SMBs borrowing through Lending Club starts at a fixed 5.9%, those who take out loans through Google Partners will pay only interest the first year, and pay back the loan on an amortized schedule in year two.

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This isn’t Lending Club’s first time working with third parties. For a little over a year now, Lending Club has extended two-fold partnerships to banks and credit unions to 1) purchase loans from Lending Club to diversify their asset portfolios and 2) offer personal loans to their banking customers. It is also working with private equity companies.

Lending Club demonstrated at the first Finovate in 2007.

Lending Club Launches IPO, Shares Rally 70% in Early Trading

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P2P lending innovator Lending Club made its public debut on Thursday. After an initial overnight pricing at $15, shares of LC opened higher this morning by more than 64% before finishing their first day on the New York Stock Exchange at $23.43.

The 57 million share offering raised more than $865 million for the San Francisco-based alternative lender, which now has a valuation of more than $8 billion. Lending Club CEO Renaud Laplanche, CEO and founder of the company, owns 4% of the company, a stake worth more than $200 million as of today’s close.

Lead underwriters for the IPO were JP Morgan, Goldman Sachs, Citigroup, and Credit Suisse.

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Lending Club’s growth since its founding in 2007 has been impressive. Operating revenues grew from $1.3 million to $98 million in the four years from 2009 to 2013. In the first nine months of 2014, Lending Club’s net revenues climbed to $143 million, more than double last year’s mark. Since its founding, Lending Club has financed more than $6 billion in loans and investors on the platform have earned more than $590 million in interest.
Here are a few more metrics for Lending Club:
    • Average customer FICO credit score: 660
    • Average interest rate is 14%
    • Maximum loan amount is $35,000
    • Terms typically range from 3-5 years
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(Above: Lending Club CEO Renaud Laplanche on CNBC)
One of the under-discussed aspects of Lending Club’s decision to become a public company is the fact that the platform will be available to a significantly larger number of Americans. Previously, access to Lending Club was a patchwork quilt of differing state regulations, with some states allowing borrowing from the service but not investing and others having the exact  opposite regulation (investing, but no borrowing). And there were some states were the service was not available at all. As a public company under federal regulations, Lending Club can operate in any state.
Another interesting theme of the Lending Club IPO is the way it will be seen as a test of the public investor’s appetite for what Mad Money’s Jim Cramer referred to as “crowdsourced lending” in his discussion of the company. Alternative lender OnDeck, which specializes in small business lending, is scheduled to go public within days in an effort to raise between $150 and $180 million. Others see the Lending Club IPO as potential validation of broader interest in fintech innovators as a whole.
Lending Club demoed its technology as part of the inaugural Finovate conference in 2007 and again in 2009 for Finovate Startup. Read our CEO interview with Renaud Laplanche.

Lending Club Files for $500 Million Initial Public Offering

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No beating around the bush about this one: we are thrilled to share the news that Lending Club has filed for an initial public offering. The alternative, peer-to-peer lender seeks to raise at least $500 million.

See Lending Club’s S-1 filing at the SEC for yourself here. Forbes reports that Morgan Stanley, Citigroup, and Goldman Sachs will serve as lead underwriters.

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The company has been understandably mum as it enters what is known in the business as its post-filing “quiet period.” But in its filing, Lending Club noted a trio of advantages over traditional lenders:
  • An innovative marketplace model that efficiently connects the supply and demand of capital
  • Online operations that substantially reduce the need for physical infrastructure and improve convenience
  • Automation that increases efficiency, reduces manual processes and improves borrower and investor experience
Additionally, the S-1 cited a few choice metrics about the company’s first half of 2014, including:
  • Net income: $86.9 million
  • Adjusted EBITDA (excluding some non cash charges): $5.9 million
  • Profit/(Loss): ($16.5 million)
  • Loans originated: $1.8 billion
In seeking to raise $500 million, Lending Club could become one of the “biggest ever stock market debuts” according to the New York Times DealBook. Lending Club has financed more than $5 billion in loans and paid investors more than $490 million in interest since inception. DealBook notes that the Lending Club prospectus does leave a few questions unanswered such as the price range for Lending Club shares, and the exchange on which the shares will trade.
For its part, Forbes’ coverage of the announcement includes excerpts from a spring interview with Laplanche in which the CEO explains both how Lending Club works and how he ensures that the “best loans” are not cherry-picked by savvy investors. “There are no best loans,” Laplanche said. “If we do our job well – and I believe we do, there is no loan that is better than others.”
You can check out our 2012 interview with Laplanche here.
Lending Club is the fourth Finovate alum to file for an IPO. Q2 went public in March. Cachet Financial Solutions and Yodlee made their IPO filings in early and late July, respectively. As one of the oldest Finovate alums, Lending Club participated in both our inaugural Finovate event in 2007 and again at FinovateStartup 2009. The company is headquartered in San Francisco, California, and was founded in 2007.