Loans & Credit Archives - Page 4 of 11

Lending Club Offers New Lenders $50 to Get Started on its Peer-to-Peer Platform

By Jim Bruene Posted on August 4, 2009
Categories: Email Samples, Lending Club, Loans & Credit, P2P Lending

This morning Lending Club emailed its existing lenders encouraging them to refer friends to become lenders on the peer-to-peer lending platform. The peer-to-peer lending pioneer says that is has added 11,000 new lenders this year, an impressive 1,600 monthly pace. Lending Club now has 20,000 registered lenders (note 1).

The pitch: Instead of paying referral fees, the $50 incentive is earmarked entirely for the new lender/investor. Basically they get a free trial of the service. The offer is available for only two weeks, otherwise Lending Club risks being flooded with new accounts that just want to get a hold of the $50.

Analysis: Typically, companies pay a fee to user who made a successful referral. Sometimes with an equal incentive to the new customer. While that may result in a slew of new accounts, converting them to long-term profitable participants can be difficult.

I believe the more-sophisticated investor/lender attracted to Lending Club will be MORE likely to make good referrals if they don’t personally benefit from the referral (note 2). No matter how much users like Lending Club, if they are being paid to spam friends, it just doesn’t feel right. While Lending Club may get fewer referrals this way, the ones they do get should convert better in the long run.

Lending Club is making it incredibly easy to spread the word. Existing customers can use an automated wizard to send messages to friends (see second screenshot) or prospects may simply enter the referring customer’s member name to qualify for the $50. And there appears to be no fine print on the offer other than the Aug. 15 expiration date.

Lending Club email (sent 4 Aug 2009 at 6 AM Pacific)
Subject: Give your friends $50 to try Lending Club

Landing page
Includes tools for automating the process of reaching out to friends

Notes:
1. So far this year, $21 million in loans have been originated at Lending Club, approximately $1,000 per lender.
2. Lending Club does pay $25 to the referral source for new APPROVED borrowers. That’s an affiliate marketing strategy and makes economic sense because it’s only paid for approved loans.

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U.S. Bank Integrates Self-Service Collection Module into Online Banking

By Jim Bruene Posted on July 31, 2009
Categories: Loans & Credit, US Bank

One benefit of running a financial services publication is that my own financial mistakes can be used for editorial material. My latest faux pas resulted in learning first-hand about U.S. Bank’s self-service collection module integrated into online banking.

The details: Apparently, last month I hit negative $300 in my business checking account during some intra-day moment. The daily closing balances never fell below a healthy balance, so I didn’t realize an automatic “overdraft” transfer from our credit line had occurred (note 1).

Since I assumed it was unused, I never looked at the credit line statement, and therefore neglected to pay it off or make the minimum payment. Then yesterday, when I went online to pay a bill, I noticed a new line item on my account ledger, Payment Assistance Options (see first screenshot below). I know that if my bank is offering to assist me with my payment, I’m in deep trouble.

I followed the link to where a well laid-out module took me through my options to pay back the delinquent loan (see screenshots 2 and 3). I paid off the $300 plus an extra $39 for the late fee, $3 for the overdraft fee, and a $2.79 finance charge. That’s $44.79 in penalty fees, pretty expensive for a 42-day $300 loan (note 1), but low cost for a blog entry.

Bottom line: The self-service collection module is a good addition to online banking and should save the bank costs in routine collection efforts where the user simply forgot to make a payment. Even though I hated the $39 late fee, I’m glad the delinquency didn’t progress further until it landed on my credit report.

1. US Bank main account management page showing collection function (29 July 2009)

2. Landing page outlining collection options

3. Promise to pay page
Note: Can pay by Web, mail, express mail,

Note:
1. Yes, closer monitoring of our checking account transaction register would have identified the transfer. But like many business owners, I prefer to spend time in other areas of the business.

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Prosper Back in Peer-to-Peer Lending Game with Full Approval of SEC

By Jim Bruene Posted on July 13, 2009
Categories: Loans & Credit, P2P Lending, Prosper

At our FinovateStartup conference two months ago, Prosper won a Best of Show award for the re-launch of its peer-to-peer lending platform. But apparently, the SEC didn’t share our audience’s enthusiasm over Prosper’s plan to operate under State of California regulatory authority while its SEC filings were undergoing final scrutiny. So Prosper went offline again, waiting until today at 5:30 PM Pacific to reopen (note 1).

The company can now set aside the last nine months of regulatory servitude and pursue its vision: allowing loans to be originated online in an auction process. Sure, thousands of pages of Prosper documentation are now on file at the SEC, with thousands more on the way, and lenders (aka investors) must now meet various state-mandated “investor suitability” requirements (note 2). But fundamentally, it’s the same peer-to-peer lending service the company introduced in 2006, albeit with hundreds of incremental improvements (note 3).

The latest version launched today includes a number of tweaks that include a higher minimum credit score (640), new risk ratings, and lower minimum bid amount ($25), but the only major changes are:

A secondary market is now available for lenders to sell their previously originated loans
A hard rate floor that establishes a minimum yield for loans. It varies by credit score and is determined by adding the current 3-year national CD rate to the expected loss rate of the loan. For example, a C-rated loan with a 6% loss rate now has a floor of approximately 8.3% (6% + 2.3%). The vast majority of loans would have been originated at rates above the floor anyway, so the impact should be small.
Because each individual state must now approve lending/investing at Prosper, only 14 are currently on board: California, Colorado, Delaware, Georgia, Illinois, Minnesota, Montana, Nevada, New York, South Carolina, South Dakota, Utah, Wisconsin, and Wyoming. More states will be added in the weeks and months ahead. Borrowing is permitted in all states except Iowa, Kansas, Maine and North Dakota.

On hold is the planned option to allow institutional lenders to post already-originated loans directly into the marketplace (Open Market), see previous post.

To support the grand re-opening, CEO Chris Larsen penned a blog post entitled: Prosper is Back! (We mean it this time) which features a humorous YouTube clip of him asking his dad to post a loan listing on Prosper (embedded below). It’s good to see they’ve maintained a sense of humor.

Prosper homepage minutes after its 5:30 PM Pacific relaunch (13 July 2009)

Notes:
1. The SEC approved the Prosper filings Friday afternoon, 10 July 2009.
2. Investor suitability requirements may involve one or more of the following: minimum net worth, minimum annual income, maximum investment as a percent of net worth.
3. For more on the P2P loan marketplace, see our Online Banking Report on Peer-to-Peer Lending (published Dec. 2007).

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Lending Club Teams with EntrustCAMA to Offer Self-Directed IRA Option for P2P Lending

By Jim Bruene Posted on March 25, 2009
Categories: Lending Club, Loans & Credit, P2P Lending, Retirement savings

Ah, it’s nice to be among the funded (see note 1). Not only can Lending Club afford to push forward with the usual marketing programs such as Google AdSense and affiliate deals, it can support unique efforts such as UnCrunch America and support for self-directed IRAs.

The IRA option, launched today (press release), primarily appeals to serious investors, given the $250 annual maintenance fee (waived the first year) from sponsor EntrustCAMA. The EntrustCAMA IRA allows tax-deferred investments in a variety of assets including single-family homes, private equity, and so forth.

Interested parties can complete the IRA form directly on the Lending Club site. However, the form must be printed and mailed to EntrustCAMA (see landing page below)

Bottom line: While self-directed IRA investors have historically chased higher-yielding investments than the single-digit returns expected from P2P installment loans, in today’s environment there should be more interest in the relatively low-risk consumer loan portfolios available through Lending Club.

Lending Club self-directed IRA landing page (link, 25 March 2009)

Notes:
1. Last week, Lending Club announced a $12-million series-B round of funding.
2. Lending Club will be appearing at our April 28 FinovateStartup conference.

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Virgin Money Joins UnCrunch America

By Jim Bruene Posted on February 25, 2009
Categories: Advertising & Promotion, Bank of America, Lending Club, Loans & Credit, P2P Lending, Virgin Money

UnCrunch America, the peer-to-peer lending educational/marketing campaign spearheaded by Lending Club (note 1) got a big boost with the addition of Virgin Money USA.

Not only does Virgin brings its considerable brand recognition, it legitimizes the effort as a true cooperative project, and adds a huge new category to the site, home loans. Plus, they get a much bigger number to put on the top of the homepage (below): $74 million instead of $1 million.

Other financial services participants include: Credit Karma (note 1), On Deck Capital and Geezeo. The campaign has its official launch today, although the website has been active since December (previous post).

The timing of the UnCrunch launch is perfect, following President Obama’s assertion last night that lending was the “lifeblood” of the economy. All active lenders, especially credit unions, should consider joining this effort or using similar themes in their marketing.

UnCrunch home page (25 Feb 2009)

Virgin Money UnCrunch landing page (link, 25 Feb 2009)

Notes:
1. Lending Club and Credit Karma will be participating in our upcoming Finovate Startup conference April 28 (see full lineup here).
2. For more info on the market, see our Online Banking Report on P2P Lending.

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Pertuity Direct Launches Financial Mashup: Consumer Loans + Mutual Funds + Social Finance

By Jim Bruene Posted on February 15, 2009
Categories: Launches, Loans & Credit, Online Banking Report, P2P Lending, Pertuity

Last month I wrote about Pertuity Direct’s impending launch. It’s been live for a few weeks, and I’ve had a chance to review it in detail. The model is so unique, we created an entire special report on the company. It is available to our Online Banking Report All-Access subscribers here. Others can purchase for $195 here. And if you just want the executive summary, read on.

Overview
Pertuity Direct is an amalgamation of two financial services plus a social lending community:

Mutual fund: Retail investment assets are gathered via the National Retail Fund, an interval mutual fund created by Gemini Fund Services. The fund plans to invest primarily in consumer loans originated by Pertuity Direct (see note 1). At the outset, there are two mutual funds to choose from: one will invest only in loans to prime customers with credit scores of 720 or higher; the other will take on more risk and invest in loans to borrowers with 660 or higher scores. Minimum investment is $250 and current estimated fund expenses are 3.1%.
Consumer loans: Three-year installment loans of $1,000 to $25,000 will be originated by Pertuity Direct under state licensure. The loans will be sold to The National Retail Fund who will hold them until they pay off. Pertuity Direct will be paid a 1% servicing fee from the fund. Borrowers also pay a 1% to 2% loan fee at funding. The company is currently licensed in 37 states.
Social lending: The last, and least, piece of the product is a social lending forum, where mutual fund investors can purchase Pertuity Bucks to give to already-funded borrowers to help them repay their loans.

Analysis
Whether this should be called “peer-to-peer lending” is open for debate. Pertuity Direct makes all the loan decisions and sets the rates. Investors have no direct influence over which borrowers are funded. However, there is a social element because investors can donate to borrowers through the community area. The model probably most resembles a member-owned credit union or mutual savings bank.

From an investor’s standpoint, it’s a unique opportunity to capture banking interest margin without actually buying shares in a commercial bank. The mutual fund is more like a bond, so it should be less volatile than owning equity. Although current estimated management fees of just over 3% are a drag on earnings, the company hopes the percentage falls as the funds gain assets.

However, the mutual fund doesn’t have the liquidity or upside of an equity investment. It’s an interval fund, meaning they will allow some redemptions each quarter (note 2), but it’s not publicly traded. There’s also the matter of how they value the underlying assets of the fund. A proprietary model will value the consumer loan portfolio each day, but since the assets are not publicly traded, there is no way to really understand if that model is working until there is a performance history.

Summary
Pertuity Direct does a credible job weaving these three disparate businesses together and its management team, with experience at PNC Bank and E*Trade, have great ideas on taking this business to the next level. But much remains to be done to educate the market and overcome the hesitancy of jittery investors. We will be following them closely (note 3).

Screenshot: Pertuity Direct homepage (2 Feb. 2009)
The company posted a 3.5-minute YouTube video of founder Kim Muhota explaining the company’s offering.

Notes:
1. While the intention is to invest in Pertuity Direct-initated loans, the funds can also invest in other vehicles.
2. The prospectus says that it will allow 5% to 25% of its funds to be redeemed each quarter.
3. CEO/founder Kim Muhota will be participating in our FinovateStartup 2009, so you’ll be able to hear directly from him.
4. For more info on P2P lending, see our Online Banking Report on P2P Lending.

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Lending Club Regains Momentum, Posts 40% Gain in P2P Loan Originations Compared to Dec. 2007

By Jim Bruene Posted on January 9, 2009
Categories: Lending Club, Loans & Credit, Market Research & Metrics, P2P Lending

If you think your 2008 was stressful, imagine having to shut down for an extended and unknown period (it turned out to be 6 months) just 10 months after launch. Then spending hundreds of thousands of dollars on SEC paperwork that your major competitor avoided (temporarily it turns out), all the while watching that same competitor take your market share while you keep your mouth shut via SEC mandate.

That was Lending Club’s year. But unlike so many horror stories of the past year, this one has a happy ending, at least so far. Not only did Lending Club reopen for business Oct. 14 at our Finovate conference (demo video here), within weeks they had already moved ahead of last year’s origination pace (note 1).

As you can see in the table below, Dec. 2008 was substantially ahead of Dec. 2007 in all measures except average loan size and approval rate, which dropped a full 2 points:

Number of applications increased by 78%
Number of approved loans increased by 43%
Dollars originated increased by 29%
Average loan size approved declined by $1,000 (9.4%)
Overall approval rate was 8.5% last month compared to just over 10% a year ago

Table: Lending Club loan origination results: Dec 2008 vs. Dec 2007

	Dec 2008	Dec 2007	Change	% Change
Number of loans originated	238	167	+ 71	43%
Dollars originated	$2.28 mil	$1.77 mil	+ $0.5 mil	29%
Number of loan applications	2,798	1,575	+ 1,223	78%
Approval rate	8.5%	10.6%	(2.1%)	(20%)
Dollar value of all applications	$24.2 mil	$14.4 mil	+ $9.8 mil	68%
Average loan size approved	$9,600	$10,600	($1,000)	(9.4%)
Average loan size declined	$8,600	$9,000	($400)	(0.4%)
Site traffic (unique visitors)	78,000	58,000	20,000	35%

Source: Loan volume from Lending Club, site traffic from Compete, calculations by Online Banking Report, 8 Jan 2009

Here’s the monthly origination chart (in US Dollars) courtesy of LendingClubStats.com who compiled the figures from data provided by Lending Club.

Source: LendingClubStats.com, 8 Jan 2009

Also, site traffic is up 35% year over year according to Compete.

Source: Compete, 9 Jan 2009

Notes:
1. The number/dollars of loans originated and applied for at Lending Club in Oct. 2008, Nov. 2008, and Dec. 2008 were all higher than the respective months in 2007.

2. For more info on the market, see our Online Banking Report on P2P Lending.

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New Peer-to-Peer Lender Pertuity Direct Nears Launch

By Jim Bruene Posted on January 8, 2009
Categories: Loans & Credit, P2P Lending, Pertuity

Just when it looked like U.S. regulators were about to kill the market for P2P lending, a new entrant is about to launch. Apparently, with the full blessing of government watchdogs.

Pertuity Direct, originally scheduled to launch at our Oct 14 Finovate conference, is about to go live with a new approach to P2P lending. In an off-the-record discussion with founder Kim Muhota and marketing director Lisa Lough yesterday, I learned about their novel approach to make the service appeal to borrowers, investors, AND regulators. It could be the model for the industry going forward.

While I’ll reserve judgement until I can actually use the service (it’s still in private testing), I’m impressed with the company’s thinking and encouraged that it appears to have successfully navigated the regulatory minefield and will make it off the ground in early 2009.

We’ll cover it in more detail at launch.

Note: For more info on the market, see our Online Banking Report on P2P Lending.

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ZimpleMoney Launches Peer-to-Peer Loan Platform to Power Social Finance

By Jim Bruene Posted on December 9, 2008
Categories: Launches, Loans & Credit, P2P Lending, ZimpleMoney

Start-up activity in the financial technology sector has slowed dramatically since Sept./October when a dozen online finance startups launched (see previous post), not a surprising development given economic conditions and the time of year.

Still, a number of companies remain in the pipeline, and yesterday we saw the launch of an entrant into the battered P2P lending space. But ZimpleMoney is not entering into the newly SEC-regulated market occupied by Prosper, Lending Club, Loanio and other hopefuls. Instead, the Costa Mesa, CA-based startup is offering a platform with tools so that third parties can either build lending services on top of it, or use ZimpleMoney’s processing capabilities to manage loans and financial transactions.

ZimpleMoney can also be used like Virgin Money USA or LoanBack to handle a single loan amongst friends and family, either for personal or business use. The introductory price for an individual loan is $39 plus $7.99/mo.

The site, which opened Monday, still looks more like a beta operation. The registration system wasn’t fully functional yesterday, and I ran into several broken links today. But minor annoyances aside, it’s an interesting development that should help drive social finance forward.

Given Prosper’s recent woes, we are not likely to see new Prosper-like P2P exchanges using the ZimpleMoney platform any time soon. But it could be a good way for nonprofits, foundations, or microfinance organizations to launch Web-based loan operations with a minimal amount of development time and expense. Banks, credit unions, and other financial services companies could also private-label the service for their clients.

In his announcement email Monday, CEO (aka ZEO) Steven Rabago said they’d had interest from several nonprofits, a realty company, an investment management company, a student lender, and a large regional bank. Rabago started his career as a commercial banker at Bank of America. He left in 1983 to start National Corporate Finance (now called Archarios). In 2001, he co-founded a location-based services company Telogis, where he remains as a board member.

ZimpleMoney homepage (9 Dec 2008)

Note: For more info on the market, see our Online Banking Report on P2P Lending.

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Loanio Shuts Down (updated with statement from Loanio)

By Jim Bruene Posted on November 26, 2008
Categories: Lending Club, Loanio, Loans & Credit, P2P Lending, Pricing

It’s 3 for 3 now. All major P2P U.S. peer-to-peer lenders have been shut down this year by the SEC (see note 1). First Lending Club in March, then Prosper Oct. 15, and finally Loanio this week (see note 1).

Here is the statement I received from Loanio founder Michael Solomon this afternoon:

In light of the recent cease-and-desist ruling issued to Prosper Marketplace by the Securities and Exchange Commission, Loanio voluntarily suspended its operations. We were not contacted by the SEC or any other government agency. The SEC ruling on Prosper, combined with the recent registration of Lending Club, removes all ambiguities as to the Commission’s legal interpretation on the issue of whether P2P promissory notes, in all of their varieties, are considered securities under current law.

Regulators have concluded that loans created in these networks are, in fact, securities and must be registered as such. You can read the SEC’s logic in its Prosper filing published this week (here).

I have mixed feelings. While I applaud regulators for taking the initiative to understand this new way of lending/investing, I find it a bit ironic that a $100-million self-regulating and relatively transparent marketplace receives heavy-handed treatment while multi-trillion dollar financial products grew relatively unchecked in recent years (see my prior editorial on the matter).

The good news is that Lending Club has proven that SEC registration need not be a death sentence. The startup successfully completed the registration process after six months, relaunching at our Finovate event Oct. 14. The company has funded $2.6 million in loans since reopening.

We are hopeful that Prosper, which has $40 million in venture funding, will be back in business in early first quarter. Angel-funded Loanio may need to raise money to finance the registration process.

Notes:
1. Last month (here), the Loanio founder predicted that at some point he’d also need to register with the SEC.

2. Fynanz and GreenNote, the P2P student loan lenders, appear to still be accepting lender funds.

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Chase Bank Offers to Lower Auto Payments by $44

By Jim Bruene Posted on November 13, 2008
Categories: Advertising & Promotion, Auto Financing, Chase Bank, Loans & Credit

It's a sign of the times. Instead of creating interest in auto loans by showing a sexy new convertible on a windy seaside road, Chase offers to help customers stay in their same vehicle with a lower monthly payment (see today's homepage below).

Interestingly, the $44 number in the headline is the actual average savings to Chase auto loan refinance customers in August (see note 1 for how Chase calculated the savings). That makes the whole ad much more believable than the usual what-if scenario.

Instead of burying that key fact in the fine print on the bottom of the landing page (second screenshot), Chase should make it the main headline of the landing page. The bank could go "social" with it by adding testimonials, a blog or forum, calculators (how about one for the iPhone?), a Facebook page, sweepstakes and even a scrolling activity ticker showing actual refinance savings as they happen, much like the Progressive auto insurance quotes (see note 2).

It's not going to help Detroit much, but it's smart marketing for the pre-holiday period. A $44 lower monthly payment translates into $500 in annual savings, enough to put a little something extra under the tree this year.

Chase Bank homepage (13 Nov 2008)

Landing page pop-up (13 Nov 2008)

Notes:

1. Derivation of the $44 savings:

Monthly savings figure is for illustration purposes only. $44.43 is the average monthly amount saved by customers who lowered their rate by refinancing their auto loans with Chase during the period from 7/25/08 to 8/21/08 on which we have the information to determine savings. These customers started with an average balance of $17,500, with an average remaining term of 49 months at an average Annual Percentage Rate (APR) of 10.50% and refinanced on average for 53 months at an average new APR of 7.31%.

2. An activity ticker is one of our top-rated projects for next year as published last week in our Online Banking Report 2009 Planning Guide.

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Peer-to-Peer Lending Volumes Worldwide

By Jim Bruene Posted on November 12, 2008
Categories: Lending Club, Loans & Credit, Metrics & Market Research, P2P Lending, Prosper, Virgin Money, Zopa

Industry blog, P2P-banking.com recently compiled a list of peer-to-peer loan volumes from around the world. The chart is reprinted by permission below.

These numbers are cumulative, all-time volumes since inception. More than half is from Virgin Money USA which has helped individuals put $370 million in loans together since it began as Circle Lending in 2001.

Because these companies don't all use the same model, I've revised the tables somewhat, excluding:

Facilitators: My definition of peer-to-peer lending excludes Virgin Money and Loanback because they do not serve as matchmakers (note 1). They do play a crucial role in putting a legal framework in place for friends-and-family loans and often end up servicing the loans as well. They are more like PayPal where Prosper/Lending Club are like eBay.
Microfinance markets: I would exclude Kiva as well. It's an awesome platform that allows U.S. citizens to loan money to third-world merchants at zero interest. A powerful tool for philanthropy, yes, but not really peer-to-peer. The same goes for MyC4 and Microplace.

So excluding the above companies, total worldwide originations are $262 million, with two-thirds of that from Prosper.

Here are the market shares of the 8 true P2P lenders that have originated more than $1 million since launch:

Company	US$ (mil)	WW Share
Prosper (US)	$178	68%
Zopa (UK)	$39	15%
Lending Club (US)	$20	8%
Money Auction (Korea)	$7.8	3%
Smava (Germany)	$5.8	2%
Zopa (Italy)	$4.3	2%
Boober (Netherlands)	$3.1	1%
Other	$4.5	2%
Total	$262	100%

Source: P2P-Banking.com, 28 Oct 2008

Note:
1. This does not mean I dislike Virgin Money's business model, just that its loan volume is not comparable to the others on the list.

2. For more info on the P2P lending market, see our Online Banking Report on Person-to-Person Lending

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