1. Fintech Chapter 6: Bank Lending

2. Primary activity of banks:
Loans
Resources to Borrower
Return to Lender

3. Monetary Policy Credit creation relies on banks Reserve ratio
Money multiplier

4. Secured vs unsecured loans
Collateral
Offset adverse selection
Unsecured: credit cards

5. Loans Commercial and Industrial Real estate Consumer loans
Interbank loans
Other, including securities lending

6. Nonfinancial Corporate Business; Depository Institution Loans Not Elsewhere Classified

7. Small Business Administration Loans
7(a) start, acquire and/or enlarge a small business
CDC/505 community economic development
Microloans
Disaster loans
Export assistance loans
Veterans and Military Community loans
Special Purpose loans

8. Commercial and industrial loans
Short term loans
Business lines of credit
Equipment financing
Inventory financing
Merchant cash advances
Business credit cards
Accounts Receivable financing (factoring)
Construction financing
Real estate
Syndicated loans

9. LIBOR Index used as a base for floating rate loans Survey of banks
Manipulation scandal
Now administered by ICE
Proposal for future changes

10. Real estate loans Collateral Down payment/term ARM Reverse mortgages
Home equity loan
Mortgage backed securities

11. Total Household Debt

12. Other Sources of Household Debt

13. Other categories of household debt
Credit cards are loans, debit cards are not
Defaults 7-10%
Total 2016 credit card debt $1 trillion
Auto loans $1.2 trillion
Student loans $1.34 trillion

14. Payday lending 12 million American users
Bad credit or no credit history
$500 or less
Short term: next pay check
High fees: APR 400%?

15. FICO Reporting agencies: Equifax, TransUnion, Experian
Fair Credit Reporting Act of 1970
Fair Isaac and Co (FICO)
Data

16. Credit data 35% of factors concern payment history
30% reflect amounts owed
15% involve length of credit history
10% new credit: a pattern of opening several new loans at the same time might signal credit problems.
10% credit mix: this is the kinds of loans an applicant may have outstanding

17. Credit scores 300-850 (NextGen to 950)
800 +: This is the highest range of FICO Score. Approximately 1% of consumers in this category are likely to become seriously delinquent in the future.
740 to 799: This is a range of very good FICO Scores Approximately 2% of consumers with a credit score between 740 to 799 are likely to become seriously delinquent in the future.
670 to 739: This is the median range and consumers in this range are considered an “acceptable” borrowers. Approximately 8% of consumers in this range are likely to become seriously delinquent in the future.
580 to 669: These are below average or “fair” FICO Scores. Consumers in this range are considered subprime borrowers and getting credit may be difficult with interest rates that are likely to be much higher. Approximately 28% of consumers with a credit score between 580 to 669 are likely to become seriously delinquent in the future.
579 and lower: Consumers with FICO Scores are considered to be poor credit risks and may be rejected for loans. Credit card providers and utilities may require a fee or a deposit. A credit score this low could be a result from bankruptcy or other major credit problems. Approximately 61% of consumers with a credit score under 579 are likely to become seriously delinquent in the future.

18. Vantage Challenging FICO
Created by Equifax, Experian, and TransUnion in 2006
Free to consumers

19. Fintech in Lending Marketplace lenders Peer to Peer (P2P)
Peer to Commercial (P2C)
Lighter regulation
Credit analysis alternatives to FICO scores

20. Marketplace lenders online application process fast response
higher approval rates
enhanced credit analysis
superior customer experience
lower rates than some alternatives (credit cards, payday lenders)
both sides of market (borrowers and lenders)
online tools
lighter regulatory burden
low overhead
entrepreneurial culture

21. Loan originations down YOY Q4’16 for key U.S. digital lenders

22. Fintech Companies Lending Club Kabbage OnDeck Funding Circle LendUp
SoFi
Kiva

23. Mortgage market is now dominated by non-bank lenders