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P2P LENDING Conference Notes VŠE, February 2015 Daniel Drahotský Head of Financial Markets Division
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Unsecured lending intermediated by online platforms Prosper (2005), LendingClub (2006) Other players: ZOPA, SoFi, FundingCircle, OnDeck, CircleBack, Common Bond, UpStart… In the beginning: simple listings of loan proposals Proposals with limited or no credit scoring Miserable collection process P2P Lending 2 Chart: Symfonie Capital
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Purpose of loans: Refinancing Credit card payoff Home improvement Small business Major purchases Car financing Medical expenses Home buying Moving and relocation Vacation Purpose of P2P consumer loans 3 77.7%
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Improvements: P2P platforms hiring credit professionals Credit scoring improved Collection process improved Creation of internal „reserve/insurance“ funds Compulsory diversification Institutional investors involved Equity investors (Blackrock, T.Rowe Price, Google, Sequoia, Kleiner, …) Loan buyers (hedge funds) Referral deals to traditional banks 1 st large IPO: LendingClub Dec 11, 2014: IPO @ $15/share company value > $1,000,000,000 at IPO ($8.2 bn today) NYSE: LC P2P Lending Improving, Going Public
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High Hopes - LendingClub 3M post IPO
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mid 2014: LendingClub + Prosper: 500,000 loans $6 bn of consumer debt 0.2% out of the est. $3,000 bn U.S. market Growing fast: Lending Club (3Q/2014) Still small, but growing fast 6
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Risks for investors Deliquencies on loans negatively correlated to GDP Deliquencies on consumer loans as a function of unemployment
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Headwinds: Limited institutional interest Terra incognita for traditional asset managers (pension funds, insurance companies, mutual funds) No independent mark-to-market pricing problematic valuation Hedge funds only Still difficult to create a reasonably sized portfolio of needles found in the haystack(s) Tailwinds: Scarcity of bank financing increased capital requirements Lower costs of borrowing “New, new thing” Platform improvements Almost no regulation no capital requirements, no banking licence, no/limited consumer/depositor protection, … Low yield environment, lack of other fixed income opportunities The future... 8
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Daniel Drahotský Head of Financial Markets Division drahotsky@jtbank.cz Let’s talk P2P…
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