The Rise (finally) of Online Specialty Lenders


One thing that always struck me as odd about the financial services startups of the late ’90s and early 2000s was their obsession with deposits. I can understand the appeal of having people send you money; it’s a rock-solid, low-risk part of the banking business model. But it also contains massively entrenched players who already have the consumers’ trust, along with a vast branch network to back it up. And it’s a commodity.

The much bigger opportunity for newcomers, to my thinking, is to go after the loan side. Consumer trust is almost a non-issue since you are handing them the money. And loan underwriting is both an art and a science with thousands of variables to innovate on. 

But it’s a dicey area for investors. The economic downturn of 2000-2002 spooked the VCs as dotcom-darling NextCard went belly up (as did other non-online, sub-prime lenders). Then the big hit in 2007/2008 killed whatever business plans had been drawn up in the post-2002 period. And there will always be concerns about where to find more funds to lend out, especially in the post-securitization world.

Fast-forward seven years. We are finally seeing an explosion of consumer and small business lending online (with mobile coming on). This newfound activity is being led by the so-called crowdfunders and P2P lenders tapping institutional money along with accredited investors (and VCs) to deliver capital using a mix of debt and equity terms.

Another specialty lending area exploding online is secondary educational financing (note 1). For example, Sofi started by targeting graduates of elite U.S. universities. CommonBond is focusing on graduate students. ProdigyFinance lends to international MBA students.

The latest entrant in the educational space is CoderLoan (screenshot below). The NYC-based startup is working with employers and educational institutions to help finance participants in coding bootcamps, where tuition can run $10,000 for a summer-long program. Employer sponsors can repay the CoderLoan after a set amount of time on the job. Or the graduates themselves can afford to repay the loans with their developer-level salaries.  

Bottom line: The uptick in digital specialty lending is win-win-win. There are potentially good returns for investors (note 2) while more capital flows to both entrepreneurs looking to expand and employees wanting to sharpen skills. Ultimately, that leads to a more productive and engaged workforce and a more rigorous economy. 


CoderLoan homepage (link, 27 May 2014)


1. For a 38-minute discussion on crowdfunding student lending, check out the panel at the Lendit conference in San Francisco three weeks ago (link). The panel included Vince Passione, LendKey; Mike Cagney of SoFi; David Klein of Commonbond; Cameron Stevens of Prodigy Finance; and Brendon McQueen of
2. Most of the activity is too recent to fully understand whether the risk is being priced adequately (see NextCard in 2002), but the results from the earliest entrants — Zopa, Prosper and Lending Club — are promising.
3. For much more on crowdfunding (debt and equity), see our May 2013 report (subscription).

Launching: Credible Will Refi Your Student Loans Through Cooperating Lenders

image On Monday, Credible debuted its student loan refi platform at Jason Calacanis’s Launch Festival (see demo below). The demo was a judge favorite, with three of the five judges naming it their favorite among the eight demos in that session. And the company ended up taking home the trophy (and optional investment) as the best established company demo. The overall winner was Connect, an address book that maps your contacts from social networks.


How it works

The business model is similar to Lending Tree. Users answer eight questions, all from memory:

1. Do you have a PRIVATE student loan? (Yes/No)
2. What year did you graduate? (choose 2001 to 2012)
3. What was the last school you graduated from?
4. Do you have graduate or postgraduate degree? (Yes/No)
5. What is your approximate income? (slider $0 to $200,000+)
6. What is your approximate student loan balance? (slider $0 to $200,000+)
7. What is the approximate interest rate on your student loan? (slider 2% to 15%+)
8. What is your approximate credit score? (slider very poor/300 to excellent/850)

Close = Enter your email address to get results

At the end of that 60-second quiz, as soon as the email is entered, Credible displays the potential savings from a student loan refi.

Interested borrowers select the Switch Lenders Now button, download their actual loan info through account aggregation technology (the demo showed Intuit powering an account scrape of Sallie Mae), complete a short loan, and upload a scan of their drivers license and last pay stub.

That info is sent off to student lenders who make actual credit offers to the user within two to three days (see screenshot #2). 

In the 24 Feb 2014 demo, using an actual student from their beta launch, the three competing lenders shown were (may not be real quotes however):

  • Wells Fargo at 3.75%
  • SoFI at 5.88%
  • CU Student Loans at 4.90%


About Credible

  • San Francisco-based startup launched in Feb 2014
  • Raised $500,000
  • 30,000 borrowers registered during its beta test (carried out under previous incarnation,
  • Founder Stephen Dash worked at JP Morgan Chase
  • Its goal is to move beyond student loans into “every bank and insurance service.”


Bottom line

As proven by the success of Sofi ($400 million funded) and the buzz around Finovate alum, the student loan market is ripe for new thinking (I won’t say disruption, because debt consolidation is hardly a new concept). That said, existing financial institutions can play in this game, and win if they want to. We believe customers would be more likely to refi if it was delivered by their primary financial institution within the secure online (or mobile) environment.

And the great thing about saving your up-and-coming customers a few grand each year is that they are hardly going to jump ship to save $5 per month on a checking account.



1. Credible wizard results


2. Competing offers



Credible demo (will launch in separate window set to begin demo at the 1 hour, 56 min mark; 25 Feb 2014)


Tuition.IO Offers the Gift of Student Loan Repayment

image This time of year I’m always on the lookout for financial companies doing something interesting for the holidays. Gift cards are the obvious opportunity, but there are other financial products that make good holiday gifts as well (stocks, mutual funds, savings bonds, and so on).

But it took a startup, Finovate alum (see FinovateFall 12 demo), to come up with one of the most valuable gifts yet: student loan repayment.

It’s not as exciting as $100 to blow at Nordstrom (note 1), but the long-term value is pretty enticing, especially if the former student gets a number of them over the years. And it’s the perfect gift from grandparents or aunt/uncle who probably don’t have a clue what gift card to choose anyway.


How it works

It’s as easy as sending an electronic Applebee’s gift card.

1. The giver completes a simple form naming the recipient, amount (from $5 to $500), date of delivery (email) and custom message (see screenshot #3).

2. Payment is made via credit card (screenshot #4).

3. Recipient redeems by providing student loan info to

Fine print:

A. Neither the giver nor recipient need have a previous relationship with

B. The gift can be used only for principal reduction, not monthly payments.

C. There is a 6.5% transaction fee (3% for the card processer and 3.5% for Like those pesky shipping charges on ecommerce sites, the amount is not revealed until the final confirmation screen (screenshot #5)

D. If the recipient does not redeem before the expiration date, the money goes back to the giver, less the transaction fee.


Bottom line

This has great potential for banks. A simple form to deposit cash or pay down bank loans/cards is a welcome service for holiday, birthday and graduations. The is nearly a perfect example of how to build one. The only serious weakness is lack of disclosure of the 6.5% transaction fee until the last screen. While $19.50 to send a $300 repayment is not outlandish, it leaves a slightly bad taste when disclosed so late in the process. Why not be upfront with it? It would just add to the credibility of what the startup is doing.


1. homepage (18 Dec 2013)
Note: “Give a gift” promo in upper right corner


2. gifts landing page (link)
It’s pretty clear what the startup is pushing this holiday season


3. Dynamic gift certificate form
Note: The virtual “card” is updated as the form is completed


4. Payment via credit card


5. Final confirmation screen shows service fee



1. We usually package a small retail gift card with the student loan payment, so it’s not completely boring.

Launching: SmarterBank, a Virtual Bank Aimed at Student Loan Holders

image Startups are advised to find pain-points, then build businesses to profitably solve them. Despite the current wave of very bad publicity around banks, especially the big ones, everyday banking isn’t a huge pain-point for the 80% of households currently served by existing players.

Sure, I’d like to have more security options, fewer unintelligible messages, and a Cash Tank. But most of these are feature/function improvements, not “must-have” issues that need to be solved.

What are the acute pain points in banking and personal finance?

  • Debt management, especially credit card and student loans
  • Home financing
  • Small business financing
  • Insurance
  • Retirement planning/saving

Three of these five have to do with the debt side of the consumer’s balance sheet. Yet, much of the talk about online/mobile banking innovations centers around spending management, payments, checking and savings accounts, and account access technology.

So I get pretty excited about innovations on the debt front. And last week, there was an interesting launch on the student-loan-management front, SmarterBank from Finovate alum, SimpleTuition. Its tagline says it all:

Smarterbank is "the bank that helps you pay down your student loans"

It’s a truly free, full-featured checking account, with debit card, paper checks and all the usual (but no branches, of course). And it’s powered by The Bancorp Bank, which has its hands in many of the new direct banking initiates we are seeing, including (bank) Simple.

But the special sauce is a built-in rewards program tied directly into student loan payback.


How it works

It’s actually two separate accounts, rewards and checking. You don’t need to buy the checking account to participate in the rewards program. But you must be in the rewards program before you can get a SmarterBank checking account.

  • SmarterBucks: rewards piece (see first two screenshots below)
  • SmarterBank: the checking account

Users accumulate cash to accelerate student-loan payback in three ways:

  • Deals/offers (note 2)
  • Banking rewards (from linked SmarterBank checking account)
  • Direct contributions from family and friends

SmarterBucks dashboard (8 April 2012)
Note: (1) Link to SmarterBank in upper right
(2)The deals piece is marked “coming soon”

SmarterBuck dashboard with link to SmarterBank from SimpleTuition

SmarterBucks reward activity
SmarterBucks rewards activity screen from SimpleTuition


Sign-up process

1. Sign up for SmarterBucks, which as a non-financial account requires only name and email address

2. Add a student loan that SmarterBucks rewards are credited to

3. (Optional) Add a SmarterBank account so that non-PIN debit purchases earn SmarterBucks rewards

4. (Optional) Invite family to contribute money directly to the SmarterBucks account

SmarterBank application hosted by The Bancorp Bank (link)

Smarterbank application powered by The Bancorp Bank



Marrying rewards, checking/debit, P2P family contributions, and student loan repayment is brilliant. It not only provides a tangible benefit for the 37 million Americans with student loan debt (see note 1), but also is a great customer-acquisition tool for a very important segment, recent college grads. Financial institutions looking for more twenty-something customers should consider building similar capabilities or partnering with SimpleTuition.


1. Figures are from the company. It also said that 10 million students owe more than $50,000, and 2 million owe more than $100,000.
2. Friends and family will also be able to link their own SmarterBucks account to the student’s.
3. We covered family/student banking nine months ago in our Online Banking Report (here).

Cology’s Acquires Student Loan P2P Lender GreenNote

image’s acquisition of Finovate Startup alum, GreenNote, was announced today (press release). The social student lender debuted at our conference last year (video here). is a student loan portal operated by Cology Inc. According to Compete, the traffic to has been running from 1,000 to 2,000 visitors per month during the past year. GreenNote has recently been averaging 6,000 to 8,000 monthly unique visitors (see chart below). 

image homepage reflects GreenNote acquisition (3 March 2009)


GreenNote Introduces P2P Student Loan Hybrid: Virgin Money Meets Facebook with a Dash of Prosper

image This week two Finovate Startup alums launched the
services they demo’d a month ago at our conference:

We’ll start with GreenNote and look at CheckingFinder tomorrow. Although I’d seen the GreenNote demo, since it was in closed beta, I hadn’t had a chance to use it until earlier this week.

My first impressions are favorable. The site helps students reach out to family and friends to put together a “personal loan consortium” to finance educational expenses (also called a “pledge drive”). While GreenNote does not currently provide access to funds from outside the student’s own network of friends and family, the service does offer tools to solicit loan pledges via email. It also collects the resulting loan pledges from interested parties, then sets up and services the resulting loan. 

The process:

  • Students solicit loan pledges from their network, and hopefully the networks of their network
  • Interested friends, family, or anyone else who’s received a loan request from the student (either directly, or through forwarding) create a GreenNote account and make loan pledges (minimum $100)
  • Once the loan is funded (minimum $1,000, no maximum), GreenNote verifies enrollment, collects the money, and packages it into a single loan agreement with the student
  • When it comes time to repay the loan, lenders can choose to forego the principal and/or interest and gift it to the student; lenders will also be able to lower the rate

The terms:

  • Loans are deferred for up to five years while the borrower is in school, then initiate a six-month grace period before repayment begins
  • Interest accrues during the deferment period
  • Repayment is over a 10-year period, meaning that lenders must commit their money for 15 years
  • The rate is currently 6.8% fixed, but GreenNote takes 100 basis points of that, so lenders receive a 5.8% return (which they can elect to lower at repayment time)
  • GreenNote charges a 2% loan fee at funding, with a minimum of $49

Coming soon:

  • Allow third parties to browse loans they might want to fund (e.g., alumni)
  • Facebook integration

At first glance, it looks like an expensive way to put a nice wrapper around funds that have already been made available by the student’s family. And certainly, if moms and dads are providing the bulk of the cash, it’s not necessary to pay 2% for a promissory note. For most loans, you can do that for less at online paperwork specialists such as Virgin Money or LoanBack.

However, the power of GreenNote’s model is tapping into the friends of friends, and the friends of those friends, and so on. As a student puts together an email pledge drive, recipients are encouraged to pass the request on to appropriate parties who might be willing to participate. For example, Pat who is headed to Michigan State, knows Jon whose uncle is a successful alum of the school. Jon’s uncle, who’d be highly unlikely to simply write Pat a check, might be very interested in putting a few thousand dollars into a long-term 5.8% deposit that earns him a fair rate of return and helps someone go to Michigan State.

GreenNote is well thought out and well implemented. The main problem though, is finding enough deep pockets willing to put thousands of dollars on deposit for up to 15 years with no guarantee of repayment.

Financial institution opportunities
Lenders have taken some heat recently as they’ve cut back on student lending during the credit market turmoil. A bank or credit union could gain some positive PR by facilitating this type of lending among their own customer base and community. It could be built from scratch or potentially in partnership with GreenNote.

GreenNote is backed by Menlo Ventures, among others, and has an impressive board and advisors including prolific blogger and partner at Glenbrook Partners, Scott Loftesness. Bill Harris of Intuit, (now PayPal), and Passmark (now RSA) fame is on the board. The launch was covered this week by TechCrunch, VentureBeat, and C|Net among others.

GreenNote homepage (5 June 2008)


Virgin Money’s Student Payback Could be the Beginning of Something Disruptive

image After talking to founder Asheesh Advani on several occasions, we expect Virgin Money (US) to become a disruptive force in the student loan business. And with college costs rising and financing options declining (see previous coverage here), there’s a need now for new approaches.

Against that backdrop, I was thrilled to see a link to Virgin Money’s press release (here) in a Payments News roundup this morning. I eagerly fired up the blog editor to write about it, but quickly realized it was not the product I was hoping for.

image While it’s a good line extension, it’s not so new (think Diet Coke adding lime). Student Payback is a well-named service to formalize friends & family loans to students, something the company already did with its Handshake and Handshake Plus services (see note 1).

The main difference, and why it costs $100 more, is that Student Payback allows up to 10 increases in the original loan amount with no additional fee. For example, each semester a new loan can be added without needing a new loan doc each time.

Strategically, Student Payback appears to be right on the money. It allows VM to better target the P2P student loan market with the eventual goal of moving upstream, graduating from merely formalizing existing loan agreements to actually brokering multi-party financing deals. For example, initial seed money could come from mom and dad with help from government/school programs. Then as the student progresses through their studies, additional financing could come from Virgin Money partner bank(s) and/or individuals/organizations with an interest in helping students at particular schools (e.g., alumni) or those entering certain fields. Scholarships, grants, internships and other related activities could also be thrown into the mix.

Anyway, there’s lots of opportunity especially with the growth of social networking and the exit of several large student lenders. Two startups showed new solutions at our Finovate Startup conference several weeks ago: GreenNote and SimpleTuition. And there are others entering the market such as Fynanz (previous post here) and Qifang, a Chinese startup TechCrunch wrote about in February (here).

1. See our Online Banking Report on P2P lending for more information.

What NOT to Do! Exit the School Loan Business

image It's been awhile since we've had an installment of What NOT to Do! (note to self: think of a catchier title). There have been a number of candidates in recent weeks, but the winners are HSBC, M&T, and TCF, which have elected to get out of the federal student-loan business (FFEL) (see notes 1, 2).   

Although overshadowed by the Bear Stearns debacle and other unpleasant economic news, these three banks managed to make the first page of Thursday's Personal Journal section in The Wall Street Journal (here) as well as a number of regional news sites (here and here).

It's a difficult time for financial companies (except Visa of course), so I understand how it would be appealing to exit this relatively low-profit market until the credit markets calm down. However, what's a sound short-term financial decision could be a public relations and brand image disaster.

If there's one thing most Americans believe in, it's the importance of education. Sen. Kennedy's recent statement from the Senate floor provides a sample of how the general public views student loan support or lack thereof (the full text of the March 8 address is here):

Americans are anxious about their economic futures. They’re seeing volatile markets, disappearing jobs, home foreclosures, rising debt, and declining benefits. Now the crisis in the credit markets stemming from irresponsible lending practices in the mortgage industry may impact their ability to secure student loans at fair rates so their children can go to the college of their choice.  

With consumer confidence down, investors losing faith in the financial markets, and Congress pointing fingers at mortgage lending practices, this is not the time to exit a business that's associated with all things good about our country. It's like saying you're temporarily eliminating charitable contributions until the economy picks up. 

If there is something fundamentally unprofitable with student lending, by all means pull back, raise prices, redeploy resources, lobby Congress, whatever you have to do to save the bottom line. But unless you are in dire financial straits, don't risk your brand's reputation by turning your back on a market segment that needs your support now more than ever. 

What to do
This is a perfect opportunity for banks and credit unions to distance themselves from the big banks pulling out of student lending: 

  • Develop a multi-media campaign, "we're on your side" that reaffirms your support of higher education through all that you do: scholarships, internships, donations, and a variety of loan options.
  • Contact the local press and reiterate the above points and make executives available to speak to the strategic importance students and student loans are to your company.
  • Release a microsite that serves as resource for students weighing financing options.


1. We have less of an issue with the smaller lenders that have exited the FFEL program including: Boeing Employees Credit Union, First Niagra Bank, Spokane Teachers Federal Credit Union, and Kansas State Bank of Manhattan (see the full list of dropouts at here). Smaller financial institutions, with less of a brand name to protect and fewer resources, may have to make the hard decision to exit an unprofitable product line. 

2. The graphic image is for effect. We do not expect HSBC to close their online Student Center, although it will need a major redo, and quickly.

Student Loan Marketplaces Profiled in Wall Street Journal

It's alternative lending week at The Wall Street Journal. First on Wednesday, Jane Kim profiles person-to-person lenders Prosper and Lending Club (here). Supporting market forecasts came from our earlier work at Online Banking Report (see Online Banking Report #127, and note 1, 2). 

Today, Anne Marie Chaker looked at Web-based student loan marketplaces (here). Each market works differently, but the basic approach is to get detailed info from the prospective borrower, then provide the borrower with a variety of specific loan options from specific lenders. In the case of College Loan Market and Student Loan Scout, a full application, including credit check, is required. But that allows participating lenders to offer firm financing quotes, similar to LendingTree's approach in the broader loan market. Apparently, this student loan sector is seeing increased activity, and scrutiny, due to the recent conflict-of-interest scandals at a number of college financial aid departments. 

Here are the links to the student lending specialists named in the article:

Of the five, only eStudentLoan has an inviting appearance, with big orange "Web 2.0" students and parents buttons and the all-imporant name-dropping of its lenders along the bottom (see screenshot below).


1. Our original forecast was published in OBR #127 in March 2006; the model was updated and the forecast increased by about 5% in November 2006. The updated numbers were cited in the Wall Street Journal article. We are increasingly bullish on the space and will publish updated forecasts this fall.

2. Also mentioned in the WSJ article: CircleLending, Loanio, and Zopa.

Wells Fargo Blog is Off to a Good Start

Wells_blog_homeAfter a slow start, with no new entries during its first week, the student loan blog from Wells Fargo is off and running. Since its Sep. 5 launch, the site has averaged about two posts per week, each running 300 to 400 words, a good length. (See inset for jump page to the bank's two blogs, <>)

Furthermore, the writing is surprisingly good, with little corporate-speak, a trap that's so easy to fall into when every word has to be approved by a team of attorneys and compliance officers. Interestingly, the one off-topic post, written by the freelancing college-student mom, Caroline Hansen, was pulled from the site a day or two after it was posted. Either her step-daughter, or more likely, Wells Fargo management didn't like the story about her new tattoo.

The site is obviously aimed at parents, with warnings about credit card abuse and an instructive post about transferring money online to pay for a $573 book tab (ouch!).

While the bank does a good job of not blatantly pitching its products, it seems that most links within the posts lead to a page. The blog would have more credibility, and readership, if it linked to more outside resources.

Wells Fargo Launches a New Blog, The Student LoanDown

Wells_blog_studentloan Wells Fargo launched its second blog today, The Student LoanDown  < StudentLoanDown>. The site, which is not yet mentioned on the main Wells Fargo site, is designed to offer guidance on the student loan process (click on inset for closeup).

The first post claims they won't try to sell anything. It's a claim not technically accurate since there are several links to the corporate lending site, and a position that's not really necessary. As long as you are upfront about the corporate affiliation, it's OK to highlight your own products and services PROVIDED it's done in a way that is both interesting and useful.

The website is powered by Six Apart's Moveable Type and launched with just a single post from two of its four listed authors. Wells Fargo joined the so-called blogosphere back in March when it launched an odd site called Guided by History, a look back at the 1906 San Francisco earthquake and what we can do today to be better prepared for natural disasters.

While that site is pure community service, The Student LoanDown hopes to educate students and parents while driving more business to its student loan unit. Live less than 24 hours, it's too early to give it a full grade, but here are our first impressions.


  • A bank that blogs, and one that will provide good PR, regardless of whether students like it
  • Even if it looks a bit hokey, you can tell the bank put an effort into the design, unlike Bank of Internet (see NetBanker Aug. 31)
  • A good cross-section of authors, one from marketing, one who's a May college graduate, one communications consultant, and a bank-sponsored, literacy-program manager (where are the guys though?)
  • Full bios and pictures of the authors
  • Comments are open (but moderated of course), which is a good feature provided the function is used. The bank will probably have to do some subtle encouragement, perhaps with employees, to get some Q&A started


  • There are only two postings, neither of which offered anything useful or interesting; try to launch with something interesting, even if it's a blatantly commercial sweepstakes
  • The design is a bit hokey; Trey Reeme over at OpenSourceCU called it, "a little on the MySpace side with a WF feel" (hint: that is not meant as a compliment)
  • The content needs more pizazz


MyRichUncle Discounts Student Loans

Myrichuncle_logo_1If you are looking to boost student-loan volume, you had better postpone that summer vacation. The upcoming July 1st interest-rate boost has created much FUD (fear, uncertainty, and doubt) for borrowers. The reason: existing borrowers have the opportunity to lock in the current rate of 5.3% on Stafford loans or 6.1% on PLUS if they consolidate their loans and refinance prior to July 1. After that, most lenders will raise rates on these loans by almost 2% to the new rate caps of 7.14% and 7.94% respectively.

Unless you already have resources in place, it's probably too late to participate in the student loan refi boom. However, a high level of activity will continue through July and August as students and their parents look for money to cover that big tuition bill in September.


With the vast majority of college-bound teenagers using search engines, online marketing is a powerful way to find prospects. However, you won't be alone. A Google search today for "student loan" had 87 advertisers bidding on the term (see screenshot above). So it's going to take more than a simple ad buy to break out from the online crowd.

The top 10 advertisers on Google today for "student loan" (11 am PDT search from Seattle ISP):

  1. (across top)
  2. (across top)
  3. (across top)
  4. National City (right)
  5. (right)
  6. GMAC Bank Funding (right)
  7. (right)
  8. MyRichUncle (right)
  9. Key Bank Education (right)
  10. (right)

Myrichuncle_homeIf you look through these top advertisers, you'll see a number of innovative techniques for capturing loan applications or leads. One of the big innovators, advertiser #7, MyRichUncle (see screenshot right), has recently earned positive PR by announcing that it will continue to price its Stafford and Plus loans 1% to 1.75% BELOW the new July 1 maximum rates. The company even earned a nice Jane Kim sidebar in today's Wall Street Journal.

Aside from its pricing and memorable name, MyRichUncle also does a good job of succinctly summarizing the available options and steering borrowers into the correct program. It even offers a Preprime loan option for students without credit histories or co-borrowers.


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