Taking a step further and extending our analyses into the lending space, Let’s Talk Payments hereby announces the launch of its second LTP9 Leaderboard in the technology-based lending space for the PERSONAL LENDING category. TECHNOLOGY-BASED PERSONAL LENDING has marked a prominent place in the lending space and is an emerging trend in the payments domain. Therefore, we found this to be an interesting category to be evaluated under the LTP9 Leaderboard.
This leaderboard presents the nine most promising companies in this category.
For the past two to three years, the technology-based personal lending industry has been experiencing the launch of multiple startups. These companies are positioned to provide generic loans or to offer industry-specialized loans such as education refinancing, house loans, auto loans etc. Companies are evolving with the use of better technological tools and are providing cross-industry lending services. This helps them to leverage the huge market potential of multiple industries under the single umbrella of personal lending. This space is becoming increasingly sophisticated with the adoption of technology-based data-driven underwriting tools over traditional interview-based methods and credit score requirements.
With high interest rates charged by conventional financial institutions, the newly devised models launched by personal lending companies enable consumers to get access to quick and easy loans or refinance at a comparatively lower rate. These models also offer a huge opportunity for consumers to make money as an investor on the respective forums. In addition to this, the technology-based personal lending industry is introducing innovative models for purchase financing, both at online, and retail and point-of sale locations. This is offered as an alternative to credit card usage and high associated monthly interest rates. These differentiations have been successful in gaining a huge market momentum.
The credit needs of low-to-moderate-income individuals are often not fulfilled by most community banks and credit unions. The costs of brick-and-mortar service delivery outlets, and legacy and regulatory compliance incurred by these conventional sources make “loan access” an unviable option to this class-category. Also, for the consumer class such as students, the high loan costs create impediments for financing their education. The advent of these technology-based personal lending models have proved to be successful in addressing such concerns.
Extensive research, including detailed company profiling and regular interactions with industry stakeholders, has helped us in developing key insights which are also backed by our own data analysis. These leaderboards have been identified through a rigorous methodology, beginning with a comprehensive list of all the companies in the space and then analyzing each of them on a scorecard with 10+ subjective and objective parameters to finally arrive at a quantified assessment for each of them. These parameters are further clubbed under three main heads: impact, momentum and focus. Continuous brainstorming and exhaustive research have been instrumental in developing these scorecards to help capture all the salient aspects of this category – both at the industry and the company level. Our own coverage of the space on LTP over the past year coupled with first-hand industry experience has been a valuable source of inputs in determining the LTP9 selection. [Read more about the selection framework here.]
Not limiting ourselves to publicly available information but rather taking the additional step of listening directly to industry leaders is what drives the authenticity of the LTP9 framework. One very important aspect of the LTP9 companies is their core competency in the category under consideration. This will help our readers to obtain a clear understanding of the product positioning of each company amidst a plethora of exciting companies in this space.
Notes: LTP9 is currently focused on the US market. Traditional banking and financial institution-led models for lending have not been considered for this particular leaderboard.
LTP9: Leaders in Technology based Personal Lending – May 2015
A brief profile of the shortlisted LTP9 companies with regard to technology-based personal pending:
This San Francisco-based company is one of the earliest entrants to the technology-based online personal lending industry. Since its launch in 2006, the company has seen continual growth year after year, establishing itself as one of the significant players in this space. The company has been growing at a pace of over $750 million a quarter with loan volumes roughly doubling each year since its launch. Lending Club saw a multifold growth in 2014 when its annual loan volume more than doubled from $3Billion in 2013 to $7.6 billion. The company operates on a peer-to-peer-lending platform, enabling borrowers to obtain a loan and investors to purchase notes backed by payments made on loans. Through the years of operations, Lending Club has attracted fund investments from some of the major venture capital and equity fund companies such as Google Ventures, Foundation Capital, KPCB and DST, to name a few. Lending Club also went for an IPO in late 2014 and went public on December 11th, 2014. This marks a significant milestone for the company. With the acquisition of Springstone, a company that provides affordable financing for private education,tutoring and elective medical procedures, Lending Club has strengthened its score on the traction dimension of the LTP9 Leaderboard. With amazing momentum and a great impact of providing the industry with a leading operating model for personal lending, Lending Club qualifies for the LTP9 Leaderboard in the technology-based personal lending category.
With an industry presence of almost nine years, Prosper is found to have evolved itself in the peer-to-peer lending industry. This company has steadily gained traction,providing over $3 billion in personal loans to over 2.5 million members. The company has been found to have a strong focus in solving the problem of a high credit score requirement towards personal lending. Prosper’s model allows investors to consider the borrower’s personal loan descriptions, endorsements from friends, and community affiliations in addition to their credit scores, ratings and histories. This helps a larger borrower base to qualify for loans when compared to the conventional model for loan approvals. On January 27th, 2015, Prosper acquired American Healthcare Lending, a financial services company that serves healthcare providers and patients nationwide. It enables affordable financing for a variety of elective procedures at the point-of-sale. This acquisition is estimated to provide a significant push to an already existing strong traction of the company.
SoFi is a US-based online peer-to-peer loan platform that connects students and recent graduates with alumni and institutional investors via school-specific student loan funds. This company has found a place in the LTP9 Leaderboard for its strong impact as well as the large momentum gained for solving the issue of high interest rates on student/education loans. The company operates on a marketplace model and provides refinancing option to the students. It has been able to fund over $2 billion in loans since its launch in 2011. The strong growth of the company is also backed by debt and equity investments of $766.2 million to date by some of the leading investment companies such as Baseline Ventures, Wicklow Capital, Discovery Capital Management, etc. Renren Inc., a Chinese social networking company has also invested in this company. SoFi is found to have established a strong footprint by providing its services across almost all states of the US. It holds a strong position in personal lending with regard to education.
Founded in January, 2013, Avant is an LTP9 Leaderboard-qualifying company amongst the startups. Avant’s operations since its launch have shown immense focus, traction and impact in the personal lending space. This Chicago-based company has gained a traction of disbursing $400 million loans to over 1.75 million people within two years of operations. To set the ground stronger, Avant has acquired ReadyForZero which creates online financial software for actively managing personal debt and credit. Avant’s impact in the personal lending space is marked by its use of latest technology and statistical methods which help the company meet customers' unique financial needs and also offer lower interest rates compared to competitors. The company has also opened a new research and development office in Los Angeles to improve the development of the data and analytics in providing loans. With an impressive funding of $1.4 billion raised through multiple rounds of funding till date, Avant holds a promising future with regard to growth in the personal lending space.
New York-based company, LendKey, operates on the model of connecting banks and credit unions with borrowers through online channels. The company provides an end-to-end lending platform, allowing financial institutions to create online lending programs and bring low-cost loans directly to consumers. The company enables this by using a cloud-based platform, thereby standing strong on the impact dimension of the LTP9 Leaderboard. LendKey has created over 30,000 customer relationships and raised over $725 million in funding for loans for its more than 300 clients. Initially launched with its services majorly focused around student loans, Lendkey is now found to extend its services to auto and home improvement loans as well. In March, 2015, the company partnered with TrueCar, a negotiation-free car buying and selling mobile marketplace. Also,back in October, 2014, CUNA Strategic Services announced a new program with LendKey and Conservation Services Group (CSG) to offer homeowners affordable loans for energy efficiency improvements that reduce their utility bills. This expansion of LendKey’s services is estimated to attract a significant number of customers to the already existing customer base of the company.
Founded in October, 2013, Lending Home is a San Francisco-based company that operates in the real estate loan space. Lending Home is a relatively new company in the personal lending space but has shown an impressive growth by achieving $100 million in loan origination volume within seven months of its launch. With a 35%-customer referral rate, this company is found to have grown to over 85 employees since its launch. It currently lends in 13 states across the United States. As per industry sources, Lending Home’s platform is identified to be 5x faster and at a third of the processing cost compared to the industry average. The company also stands strong on with regard to the impact dimension on the LTP9 Leaderboard given the use of its technology, consumer experience, data analysis and private investment platforms to provide fast and competitively priced real estate loans. An attractive aspect of company’s model is to be able to analyze a borrower’s likelihood to repay a loan by going beyond a simple appraisal or FICO score. It uses a mix of both traditional and alternative data sources to determine the true value of a property.
Common Bond is a New York-based company which started its operations in 2012. The company’s operations bring along a strong focus around education refinancing and enables the loan disbursement at APRs as low as 1.93%. This company has strongly positioned itself in this space by achieving $100 million in loan refinancing to date and serving over 700 graduate programs across the United States. This company has been found innovating in its services through different product offerings such as hybrid loan which has both fixed and variable interest rate components. The company has raiseda total funding of $253.5 million and stands high on the LTP9 factors of focus and momentum.
Bill Me Later (Paypal Credit):
Bill Me Later is a PayPal service that enables customers to purchase products without providing their credit card details. This company has an established presence since 2000 and has been able to maintain an annual growth rate of 10%. Bill Me Later’s performance and operating model has also attracted an acquisition by eBay for approximately $820 million in cash and approximately $125 million worth of outstanding options. Maintaining a high degree of focus in the lending space and digital payments, the company continues to increase its traction with plans to extend its services to retail and point-of-sale. This is accompanied by the company’s expansion in the United Kingdom and Germany, too. With an already strong market foothold of PayPal, Bill Me Later is estimated to continue on its own growth trajectory while also leveraging PayPal’s strong existing customer base.
Established in 2013, Affirm is found by Paypal’s co-founder Max Levchin. Affirm, is a data-driven company which offers consumer credit at the point-of-sale. This company is found to participate in the personal lending space by addressing the problem associated with the use of a credit card and its monthly interest charges through its product Split Pay. Split Pay provides an easy way for consumers to apply for and receive a short-term loan to finance the transaction. Through this product, Affirm has tried to develop a model similar to a mortgage or a car loan to the general retail purchase items. Further, this product provides consumers with a full report on the overall cost of the product, rate of interest and how much they’ll be paying each month. The company has also been successful in raising $45 million in debt and equity financing from investors that include Khosla Ventures, Lightspeed Venture Partners and Nyca Partners.