Peer-‐to-‐Peer Lending and the Future of Co

Peer-­‐to-­‐Peer Lending and the Future of Co-­‐Opera5on Sean Geobey (Pending) Assistant Professor, University of Waterloo School of Environment, Enterprise and Development Senior Associate MaRS Solu5ons Lab May 3, 2015 Example: Pebble Watch •  Customizable wristwatch •  University of Waterloo / Palo Alto, CA •  $100,000 goal •  $10,266,845 raised in 2012 •  Pledges of $99+ will receive a Pebble Watch •  Second round: $20,338,986 raised in 2015 Agenda • 
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What are Crowdfunding and Peer Lending? Community development, consumer and business Industry leader profiles Strategic opportuni5es Why Crowdfunding and Credit Unions? Individual funders select a fundee to support. Dollar amount usually has to exceed a threshold of the fundee’s “ask” Fundee Funder 1 Funder 2 Funder 3 Funder 5 Funder 4 Crowdfunding Pla[orm Crowdfunding pla8orm provides the “marketplace” for fundees and arranges the financing Contribu5on Equity Reward Peer-­‐Based Lending Over $2.7B Pre-­‐
Purchase in funds raised in 2012 from crowdfunding $1.2B was in peer-­‐based lending Community Development Consumer Lending Small Business Lending Member 1 Member 2 Member 3 Project 1 Current Credit Union Community Giving/CSR Contribu5on, Reward or Pre-­‐purchase pla[orms could allow members to directly allocate credit union community development funding Member 1 Member 2 Member 3 Project 2 Project 3 Project 1 Credit Union Crowdfunding Pla[orm Project 2 Project 3 Loan security provided by a separate financial ins5tu5on Fundee Financial Ins5tu5on Loan Provided minus fee Loan request Crowdfunding Pla[orm USA Peer-­‐to-­‐Peer Lender Market Share, 2014 5.0
% 6.2% 9.0% Prosper.com 36.3% 43.5% Other Lending Club Loan Issues Sources: www.ibisworld.com, lendingclub.com •  Growth in ins5tu5onal investors – now 60-­‐70% in large providers •  Lender oversupply – in 2014 over half of Lending Club loans filled within 3 hours 1,230,000 loan applicaPons made $13,450 average loan request 1,049,000 loans rejected 610 average rejected applicant credit score Average work experience under 1 year AutomaPc rejecPons: Debt-­‐to-­‐income ra5o over 25% (excluding mortgage) Average work experience under 1 year No Social Security Number Under 640 credit score Under 18 years of age 181,000 loans made (15%) $73,000/year average income $13,130 average loan granted Average interest rate of 15% Type of Investment Refinancing 57% 21% Credit Card Payoff Business Other 1% 21% Value of SME Loans by Type of Financial InsPtuPon in Canada, 2011 Domes5c Banks 49.2% Credit Unions, Caisses Populaires Financing Companies Other Banks Insurance Companies and Por[olio Managers 17.4% 14.7% 10.0% 8.6% USA (projec5on) $5,106M Consumer UK, 2012 $6,990 Business Consumer market already exceeds this; SME market much smaller $816M Consumer Canada (projec5on) $1117M Business United Kingdom alterna5ve investments include both robust SME and consumer lending $557M Consumer $769M Business Less than $30 million in peer-­‐to-­‐
peer loans in total The 800-­‐pound Gorilla The Also Ran The Offline Player The Canuck Profile: Current: June 2014 Profile: Current: June 2014 Profile: Residents of Nevada are not eligible for a refinance loan at this Pme, and variable rate loans are not offered in Minnesota and Tennessee. Profile: Strategic OpPons Low Engagement Ignore Crowdfunding Become Ins5tu5onal Investors Partner with Exis5ng Pla[orms Develop New Pla[orm High Engagement Strategy 1: Ignore Crowdfunding Scenarios
Avoid the “pop” of a new credit bubble Face niche market displacement Strategy 2: Become Ins5tu5onal Investors $ Strategy 3: Partner with Exis5ng Pla[orms Credit Unions Provide New lenders New borrowers Offline networks Pla8orms Provide Investment vehicles Borrowing vehicles Ease-­‐of-­‐use How to Approach? Bargaining as a whole => clout of sector vs Bargaining one-­‐by-­‐one => flexibility Strategy 4: Develop new pla[orm Between non-­‐credit union members To or from credit union members Within credit union system Within a credit union Ques5ons [email protected] @sgeobey Lending Club Prosper & Lending Club Structure •  Website –  Lending Club (publicly traded company, 7.15B mkt cap) •  Bank –  WebBank, Utah-­‐based industrial bank, issues loans for both Lending Club and Prosper •  Holding Company –  Por[olio Financial Servicing Company holds Lending Club and Prosper loans in case either site goes under to maintain the lender-­‐borrower rela5onships •  Uses debt collec5on prac5ces if a loan defaults