Ce diaporama a bien été signalé.
Le téléchargement de votre SlideShare est en cours. ×

The Transformation Underway in FinTech Lending

Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité
Publicité

Consultez-les par la suite

1 sur 20 Publicité

Plus De Contenu Connexe

Diaporamas pour vous (20)

Les utilisateurs ont également aimé (18)

Publicité

Similaire à The Transformation Underway in FinTech Lending (20)

Plus récents (20)

Publicité

The Transformation Underway in FinTech Lending

  1. 1. SPOTLIGHT ON LENDING Dushyant Shahrawat, CFA Perspectives and Analysis of the Transformation Taking Place in the Lending Market “Ain’t your Grandpa’s business anymore”
  2. 2. Salient Points About the State of Lending Innovation 1. Startup Activity, VC Funding: The red-hot startup activity and VC funding in Lending seems to be slowing down, but we have 800 Lending startups with $9.7B capital deployed 2. Disruption of Traditional Lenders: News of the demise of traditional bank lenders is vastly exaggerated, but cracks are appearing: spreads declining, loan portfolios deteriorating, risk profiles rising 3. Bank/Startup Competition: Lending startups mistakenly believe they outcompete banks on all fronts. Instead, the sole advantages are in customer experience and origination 4. Shakeout Among Startups Imminent: Phase 1 of Lending startup growth holds the most promise for the long-term, with Phase 2 startups bound to struggle, or simply fail 5. Most Powerful Innovation: The use of alternate criterion for assessing credit risk and to originate loans (aka “Alt Lending”), will transform lending by better matching borrower requirements with funding risk appetite 6. P2P Marketplaces: This is the biggest transformation in lending as it directly connects borrowers & lenders, a significant improvement over the traditional bank-intermediated lender model
  3. 3. Startup Growth, VC Funding and Market Multiples of Lending Unicorns
  4. 4. Lending Startup Activity Has Been Red Hot Since 2014, With 400 Firms Launched And $6B Of Capital Deployed $9.5B Cumulative VC funding of alternate Lending since 2010 $4.95B Amount raised in 2015 alone! $1B SoftBank’s funding round to SoFi, the single largest FinTech funding 800+ Number of Lending Startups funded since 2005, with 1/2 funded in 2014/2015 $1.5B Funds raised in LendingClub’s IPO in Dec 2014 7 Number of Lending Unicorns (valuations of over $1bill) The 7 Lending Unicorns are: Avant, Credit Karma, Funding Circle, Kabbage, Klarna, Prosper, SoFi Consumer Lending is biggest sector: • Personal Loans (166 firms, $2B funding) • Education (33 firms, $1.7B funding) Average funding per startup is highest for B2C models at $54M
  5. 5. VC Funding More Than Doubled in 2015, From 2014 “Funding Circle Raises $65 Million for Peer-to-Peer Small Business Loans” “Loan Platform Kabbage Raises $135M at a $1B Valuation, Grows Credit Line to $900M” “Fundbox Secures $50 Million in Funding, With Investment by Jeff Bezos” “Square Raises More Money To Make Small Business Loans” Source: Dow Jones VentureSource
  6. 6. Investor Base in Lending Startups is Broadening with Corporates, VCs, Exchanges and Banks Involved in Funding Its not just Angels and VCs investing in Lending startups; there are Banks, Corporates, Payment Networks and even Exchanges providing Funding Source: CBInsights
  7. 7. Lending Startups Dominate the FinTech Unicorn List (5 of 15) 7 FIRM TYPE OF BUSINESS INVESTORS VALUATION ($M) INVESTED CAPITAL ($M) VAL/INV CAP Lufax Lending, Specialized Financing CDH Investments, China International Capital Corporation, BlackPine Private Equity Partners, Ping An Insurance $10,000 $485 20.6x Square POS devices, Financing platform First Round Capital, Citi Ventures, GGV Capital $6,000 $717 8.4x xStripe Payments platform Khosla Ventures, Lowercase Capital, Redpoint Venture $5,000 $190 26.3x Zenefits HR platform SV Angel, Institutional Venture Partners, Venrock $4,500 $584 7.7x Social Finance Marketplace lender, Student loan refinancing Baseline Ventures, Doll Capital Management, Institutional Venture Partners $4,000 $1,540 2.6x Credit Karma Consumer credit management service Felicis Ventures, SV Angel, Founders Fund $3,500 $369 9.5x POWA Technologies Provides payments/infrastructure technology Bright Station Ventures, Wellington Management $2,700 $177 15.3x Adyen Payment transaction platform Felicis Ventures, Index Ventures, Temasek Holdings $2,300 $266 8.6x Klarna Helps retailers process payments Institutional Venture Partners, Sequoia Capital, General Atlantic $2,250 $289 7.8x One97 Comm Mobile wallet, online marketplace Intel Capital, Sapphire Ventures, Alibaba Group $2,000 $585 3.4x Prosper P2P lending marketplace Accel Partners, DAG Ventures, Draper Fisher Jurvetson $1,900 $355 5.4x Transferwise Money transfer service IA Ventures, Index Ventures, SV Angel $1,000 $90 11.1x China Rapid Finance Online consumer loan marketplace Broadline Capital, UBS $1,000 $35 28.6x Coupa Software Cloud-based business automation provider Battery Ventures, Iconiq Capital, T. Rowe Price $1,000 $169 5.9x Funding Circle Lending platform for small-businesses Accel Partners, Index Ventures, Ribbit Capital $1,000 $273 3.7x $48,150 $6,124 7.9x Lufax, SoFi, Prosper, China Rapid Finance and Funding Circle are valued at over $1B• Largest Unicorn is in the Lending space, and is valued 66% higher than the next Unicorn • Three lending Unicorns are US, two are Chinese
  8. 8. Chinese Lending Startups Have a Much Greater Valuation Than US Lenders, and Much Higher Than Other FinTech Unicorns 8 The average Lending startup has a valuation of 12.9x compared to 7.9x for the average FinTech Unicorn. But the Chinese startups drive up this valuation Firm Type of Lender Investors Market Valuation ($M) Invested Capital ($M) Multiple* Lufax Lending, Specialized Financing CDH Investments, China Capital BlackPine Private Equity, Ping An $10,000 $485 20.6x Social Finance Marketplace lender, Student loan Baseline Ventures, Doll Capital, Institutional Venture Partners $4,000 $1,540 2.6x Prosper P2P lending Accel Partners, DAG Ventures, Fisher Jurvetson $1,900 $355 5.4x China Rapid Finance Online consumer loan marketplace Broadline Capital, UBS $1,000 $35 28.6x Funding Circle Lending platform for small-businesses Accel Partners, Index Ventures, Capital $1,000 $273 3.7x Average FinTech Valuation 7.9x *Multiple is calculated as [Market Valuation / Invested Capital]; i.e. what premium the market is willing to pay to acquire a startup over its invested capital Source: CBInsights, Individual Firm Data, Venture Sources
  9. 9. Categorizing Lending Startups and Analyzing the Longer-term Market Transformation
  10. 10. There Are Four Models In Alternative Lending, With Marketplaces Being The Most Transformative • Direct Lender: Firms with a lending license that carry loans on their own books • B2C: Platforms that partner with a single lender for loan origination • B2C Marketplace: Platforms that have multiple lenders (Financial Institutions, Accredited investors) for loan origination • P2P Marketplace : Platforms with multiple lenders including non-accredited individual investors Source: Tracxn, Media Sources, WSJ
  11. 11. Lending Startups Play In A Larger Ecosystem That Includes Payment Networks, Aggregators And Invoicers Source: Oliver Wyman
  12. 12. We Are In the Middle of a 12-15 Year Transformation of the Lending Market EARLY STAGE GROWTH MATURITY 2008-2011 2012-2016 2017-2020 Stricter capital requirements force banks to restrict lending Some segments of borrowers go neglected, and their needs unmet First sign of investment interest emerge Traditional banks dominate as lenders Lending startups begin emerging in 2012 Investment funding explodes in Lending sector during 2014-2015 Startups begin using alternative methods to assess risk (Alt Lending emerges) Traditional banking lenders begin paying attention to lending startups 15 Lending startups achieve Unicorn status ($1B valuation) Banks acquire many startups and bolt-on new front-ends to their back- end platforms Shakeout among startups; 50% shutter, 20% sell-out Big improvement in customer satisfaction among savers and borrowers
  13. 13. Looking Ahead: Six Projections For the Future of FinTech Lending
  14. 14. 1. Of The Three Phases In The Growth Of Lending Startups, Phase 1 Startups Are Best Positioned To Succeed In The Long-term PHASE 1 (firms started in 2010-2013): Real innovators with a high chance of long- term success PHASE 2 (firms started in 2013-2015): “Me Too” startups excited by Phase 1’s success, but most bound to fail PHASE 3 (firms started after 2015): Still in early stages of innovation, with high hopes for another phase of growth
  15. 15. 2. By 2017, Lending Startups Will Begin to Exert Real Competitive Pressure on Traditional Lenders Source: WEF Report: “The Future of Financial Services” Alt Lenders have distinct competitive advantages over traditional Lenders that are becoming evident every day More Accurate Underwriting The modern approaches for underwriting and assessing credit risk used by startup lenders will be adopted more widely by traditional lenders Increased Access Alt Lenders are providing more lending options to a broader range of borrowers, who are currently being neglected by traditional lenders Control & Transparency Lenders will gain greater control over the return on savings based on their risk appetite and more visibility into the flow of their savings Reduced Costs for Borrowers/ Increased Returns for Savers Better risk management use by Alt lenders reduces the costs for borrowers, and enhances returns for savers Significantly Better Customer Experience Streamlined and automated processes expedite loan processing and improve customer experience for borrowers
  16. 16. 3. Alternative Measures Used by Innovators to Assess Credit Will Go Mainstream, as Banks Rush to Adopt Them Conventional Credit Scoring Limitations of Traditional Models Need for Alternative Methods Forms of Alternate Credit Scoring Uses existing financial/credit info to assess credit risk Ignores people with limited credit history (new immigrants, international students) Include ignored customer segments, improve risk assessment and better matching of borrowers/lenders Use of Social media info, utility bill payments, employment information Firms driving usage of Alternative measures to assess credit risk in Lending market Source: Tracxn “Alt Lending Report”, Firm analysis, Public filings
  17. 17. 4. Lending Startups Think They Can Compete with Banks On All Fronts. They Are MISTAKEN! Funding Costs Credit Decisioning Customer Acquisition Servicing/ Customer Experience BANKS LENDING FINTECHS How Banks Stack Up Versus Startups in Differentiating Their Services
  18. 18. 5. Advice to Banks: Change Your Incentive Structure for Lending Sales teams If You Want to Truly Compete With Startups If a Bank’s Loan Department Grows its Loan Portfolio by 50% in 3 years… The Department Head Gets Promoted and the staff gets a bonus of 10-15% If a Lending Startup Grows its Loan Portfolio by 50% in 3 years… The Valuation of the startup skyrockets, enough for the Founders and key employees to hang up their boots and retire! Incentives at traditional banks are woefully inadequate to drive lending growth, and definitely trail what Lending startups are doing to drive growth
  19. 19. 6. Banks Will be Forced to Partner with Startups to Improve Customer Experience, Adopt Alternative Credit Methods and Boost Returns Source: Oliver Wyman Report: “Battle for Supremacy in Lending” ”JP Morgan Chase Bank announces strategic partnership to use OnDeck’s platform for small business loans” Select Bank/Startup Partnerships in the Lending Market
  20. 20. Dushyant Shahrawat, CFA Dushyant.shahrawat@sloan.mit.edu 617.905.5500 THANK YOU Please reach to me with comments, insights or questions.

Notes de l'éditeur

  • Describe what major financial firms are doing: their investments, their projects
    Important influential people (Blythe Masters) that have bet their career on it
    Use dollars invested by firms like Goldman, quotes from people, etc to make the point
  • Block chain is the next phase in evolution of the Internet, and those things take time.

    It will be 10 years before this sees the light of day.

    5 Phases of Growth: Dismissive, Curious, Incredibly excited, Understood, Harsh Realization.

×