Sign New York Banking Living Will Online

Industry sign banking new york living will online

thank you good morning everybody it's great to be great to be here so today I'd like to talk about where I believe our industry is today and where I think it's going and we're gonna have a little bit of fun I'm going to make three predictions today of things I believe will happen in our industry over the next 15 months and that may be next year at landed Europe if Peter invites me back we can do a status check after a year I made these predictions about over 15 month so that even if you're not done by an entity of next year I still have three month to make it happen all right let's let's get going so I think the industry has covered a lot of ground over the last ten to twelve years 10 to 12 years ago for major platforms emerged through these dope are in the UK was the first one when many Club and prosper in the US and credit is in China and at the time it was really looked at as a little bit of oddity and description do so in the press where with websites arranging person-to-person loans and and I think since then we've really established the industry as an entirely new asset class as a very legitimate and as probably soon the dominant way of obtaining loans and for consumers and small businesses and so a couple of sort of proof points about how mainstream the industry has become at least in the US and and in other places so just four weeks ago Goldman Sachs came out and well first the fact that government's accident launched a marketplace lender Marcos is a sign of industry measuring the don't they came out saying actually we believe that their own platform markers will generate as much revenue of for gunmen in the next few years as bond trading which is one of the main businesses so that shows how how they believe industry Reed grew and the only fault would be would be successful run just two weeks later Keith no record who's the acting chair view controller of the currency the acting chair vo CC to the top US banking regulator came out saying that they that online lending is a natural evolution of banking so you could have meant to thing by that two things I've herb of the banks are going to be doing more online anding or actually the online lenders or becoming the ultimate evolution of banking itself and that was the latter I think it's very encouraging to have the top US banking regulator speaking in those terms so let's look at the sort of the fundamentals of online lending as just a state of industry and like a few things that have been established over the last ten years and really white why it's working so the first reason why it's it's really working while the entire model makes sense is mostly a cost reduction it's really using a technology and online delivery to lower cost and also deliver a better experience to consumers and businesses so with I've shown that slide before it's now well established methodology to has been used by Bain and McKinsey to show how much cost reduction the industry is achieving and depending on the survey it's anywhere between 400 and 600 basis points of savings the the other reason why it's working is we're able to gather online additional data points that might not be available offline in a branch context and so that includes the online footprint of the consumer so we've started years ago using email aging and email popularity to establish that footprint when we brought in additional payment data that wasn't traditionally part of the credit report such as utility bill payments then we started using most of location that are to try to understand disparity between different different regions particularly in the context of free cash flow analysis which is something that at least a couple of platforms in the US are using that's so far and upgrade but already using free cash flow analysis as a way to take into account expenses other than does the payment of the debt right so so far we have been pretty good at using credit history credit attributes the current credit situation of a user as well as the service of the debt for the debt to income ratio the free cash flow really makes room for things that that or more bouts of how much taxes are applied in that particular city and state the use of housing expands in the general cost of living with very significant disparities in the US with for example some cities in of South Carolina having a 50% lower cost of living than New York or sundress alright so with with all this data we've improved the underwriting we were able to deliver some significant returns to to investors and suffice them to upgrade for one is targeting 8% return across the entire platform as an average across the platform in comparison to beams of high-yield bonds that are currently returning five and a half percent granted the analysis and completely apples to apples in the sense that a lot of the other asset classes on that slide I have more liquidity so it's interesting to look at it in the securitization context to sort of normalize force of risk and liquidity profile if you look at the senior tranche of a lot of these marketplace lending ideas which is in black in that slide you see that for is of similar returns middle risk you get into very no maturities on the tribal bilderberg be ready charge you can get a 5% return with a one to two year duration which is really much shorter than anything else available the over of aspect of marketplace and the investment that has really be powerful for investors is the fact that it's good portfolio diversification and there's very little correlation between marketplace loans and other asset classes you all know how to read a correlation chart one is a perfect correlation zero is no correlation at all marketplace lending has a correlation of 0 to 0.2 with most major asset classes so all this has led to a significant growth in the industry and even in the last two years the still 87% companionless growth which so fast growth and credit isn't necessarily a good thing in the case of marketplace and it is a good thing because most of these loans online are meant to refinance existing balances that carry interest at a higher rate this is a good thing for consumers to be able to lower the cost of other credit and and so I believe and so that's going to be my first prediction today I believe that I love the music that the growth of thought nine mending will actually accelerate re-accelerate from you and it's it's a rare thing and I'm in a maturing industry when the girl freight starts going down like it has in 2016 it's rare to see it go back up again I believe there are a few factors behind that predictions like the entry of two of new market entrants like like upgrade and government tax but also I think the conditions that that really favor a renewed growth in the US and we will talk we'll talk about that so I mean first when you look at the outstanding balances on credit card right which again in the US for personal loan formed personal loans delivered by marketplace lenders is the number one use case is being able to refinance a credit card at a lower rate so the credit card balances have been going up pretty pretty quickly it's actually only a five percent annual growth rate but it's a very large base so a five percent growth rate in this case is fifty billion dollars so essentially the size of the problem we're trying to solve got fifty billion of worse in just the last 12 month so there's a an increasing need for for credit card refinancing which could be a bad news in terms of the health of the US consumer but actually what was been happening is as credit card balances went up we've seen other balances come down including mortgages for a number of reasons but some some of them being being favorable being low interest rates and people paying down their mortgages and that combined with a decent wage increase over over the last few years has led the u.s. consumer to experience now one of the lowest actually the lowest debt to income or debt servicing ratio ever so the US consumer is actually doing fine from that standpoint or a number of other metrics which of as consumers is doing well in terms of unemployment in terms of wage growth and I believe that's one of the main factors but has really enabled a sustained economic growth in the US over the last hundred month now so the current economic expansion has been 99 month which is the third longest in US history it's still 20 month shorter than the previous period of economic expansion in in India in the 2000s but in the 90s sorry but the what's what's interesting is this research done by government Sachs that shows the likelihood of a recession in the u.s. in the next five to nine months and that methodology has been pretty pretty accurate over the last three decades and this methodology shows it currently a 30 percent risk of a recession nine quarters out and typically over again the last several decades a 30 percent reading as correspondent with a recession being in effect several years out so that of positive pretty pretty optimistic projections where so the other factor that I think will help market a spending online and then continue to grow and grow faster and be more useful to more people is the emergence of what I called online lending 2.0 which is really a second wave of growth in the industry enabled by a number of things by our own learnings we've been at it for for 10 years and we all learned a lot but also by a series of technologies that we are just not available 10 years ago including zuv very modern technology stacks based on micro services that really help to compartmentalize each service and make it available as a service and help reuse components so for example a document verification or of address verification module will be its own service available for an API and can combine of many of the services and create new new product and obviously the emergence of cloud computing that helps reduce cost and improve security big data that helps generate new new variables and better understand the the underwriting and recorded dynamics as well as we blockchain protocol that really helps from a data integrity standpoint so all these new technologies of coming to maturity of this technology the I believe will help in terms of reducing further reducing operating cost and bringing down the cost of credit for for consumers and will also help to improve the underwriting again for variable generation for Big Data process but also will help in terms of compliance of data transparency and there are variability and these in turn will have pretty significant user benefits both on the borrower and the investor side so for me from a power standpoint again a lower operating cost really helps bring down the cost of credit so that componentization of of services also helps create new products faster which we bring more convenience to consumers and we will talk more in a minute about these new products that are coming on a consumer side but then for investors I believe bits of greater availability of data and our own desire to make that there are very boring for example at upgrade we've decided to bring it to a new level of transparency by making the entire credit policy available to investors as well as verification procedures but also ongoing transparency in terms of how the portfolio is evolving in terms of the evolution of credit qualities of each borrower in the portfolio independently from the actual loan performance as an investor on the upgrade platform you'll see if the borrower's credit score on average is going up or down before you even start seeing any impact in the performance of the portfolio and to this data availability and and greater comfort in the integrity for the blockchain protocol for example me just say a word about this we essentially using the blockchain as a data integrity two-bys of committing to a public blockchain the of transaction every transaction every document entered into the borrower which essentially creates a immutable and time-stamped record of every transaction in a way that's very very cost efficient and very transparent so all these tools I believe would continue to help investors and that leads me to my second prediction to the emergence of a secondary market I think we've talked about it for long enough now it's time to do it I think the one of the platforms might get it done I think the number of ecosystem players like orchard piq and Evo one that also bringing the data and the standardization in the data that is necessary for securities to be to be more liquid we've also worked on besides actual securitization we've worked on products like pass-through securities that essentially help an investment bank by loans from the platform and create a cubed social security that can be standardized and and traded I think all the components all the ingredients all there to make the assets more modoch weed within the next 15 months so that's we the investor 7 on the borrower side I think there will be some major product innovation so looking at what happened in the last couple of decades there's been what I could be the unbending of banking with so if you look at the the five major things banks do or used to do there's really landing processing payments taking deposits helping customers manager assets and through a lot of relationship and proximity banking a lot of good advice being given to the bank's customers and you've seen of many of these businesses being unburned Alden and the number of players of FinTech players essentially as of developing an offering that addresses one of the services and dealings of really good at it and very efficient so obviously the emergence of online lending is one of them but also actually started with PayPal in ninety-eight that started providing some portion of the of the payment stack and then other companies since have continued along that path there's been no attempt actually taking deposit so far because of the regulatory aspect of it but then if you look at asset management of your Robo advisors have done a great job at automating a lot of that and then there are number of personal finance companies that are doing a fantastic job at giving people more insight into their credit or helping them with their savings also developing other tools that help them budget and better manage your finances so all this has been tough unbundled over over the last few years hey what we've seen recently is the beginning of a rebounding and a reorganization of these services in a way that delivers more value to the user and creates combinations rather already they're all really interesting so if you look at these five services again and put on the side a number of online vendors and FinTech companies and I apologize to everybody who's not on this on this slide just too many of them these are just examples so obviously you in Europe offerings of payments and an online lending in the context of retail financing a firm doing something similar in the US you had Square actually going the other way around and starting with payments and developing Square Capital as a way of lending to to small businesses when you've had so far that and then square by the way is applying for a banking charter in the US which might give them the opportunity to take deposits as well and then you had safai that obviously started with lending student loan refinancing and mortgages then through acquisitions and organic development started offering asset management services to go to their users and is also applying for a bank each other when you do facts and credits is actually the two largest online lenders in the world now both in both in China that have pretty much from the beginning offered asset management services to their users what's different now is we we started offering asset management as a way as a as a channel as a conduit to the online platform that we are now offering asset management to invest in other products as well so interesting rebounding there and upgrade obviously you knew it was coming there was going to be a great commercial at some point in this presentation I'll keep it short but we've chosen to rebound all essentially the of loan products and credit monitoring so it's not necessarily the one that's gonna make us the most money because the credit monitoring is fr e but but I believe it's something that will be truly useful for for consumers so we've developed a number of tools that really help right now existing borrowers but but very soon in the next month also also declined applicants where things going to be even even more useful so if we didn't understand the credit the credit profile and click a few little down and understand how much is old under each line and the cost of each part of a credit and how that quality is trendy and more interestingly run simulations and say okay I'm getting a $10,000 bonus this year should I pay down my mortgage pay off a credit card and get the impact of that action on their credit quality and their credit score then we we launched a couple of weeks ago an entire website we're going to credit health inside that which delivers a lot of content for free to our users but to the public at large also on a fuse of topics now 16 topics that are being addressed and there's more are being rolled out that really help consumers better understand the utilization ratio on their credit report better understand the impact of variable or fixed interest rates and and really start making trade-offs and make better decisions that we believe will help firms of upgrade where their credit and and get get better at managing their finances which so we all rebounding ID gets me to a number which I believe that in the next 15 month we'll see a major product innovation in you know managing and in a combination of online lending and other adjacent spaces in in banking I've I've always been fascinated by the story of avila right who the right bothers of creating a airplane with spare parts of bicycles and I think we'll see something similar of different platforms really creating an entirely new product using components use it features partially thanks to the technology of micro services of componentization of Technology will be able to assemble a product that truly delivers unprecedented value to consumers and small businesses and help customers get access to more affordable credit and save money and and deliver a lot of value thank you [Applause]