The Hourglass Effect: A Decade of Displacement
4/21/15 It only takes a spark to get a fire going….. 2 Who the heck is QED? Frank Rotman Nigel Morris Miles Reidy § Venture Capital firm focused on AdTech and FinTech § Founded in late 2007 by 3 Capital One Veterans § Added 2 new Partners – both Capital One Veterans § Collectively 100+ years of experience in building Financial Services businesses § Breakthrough disrupters attacking the incumbents and leveraging next generation approaches § Play active, hands-on consigliore roles with leaders leveraging our operating experiences Caribou Honig Bill Cilluffo 3 Our FinTech portfolio is keeping us busy! Pre-‐2011 2011 2012 2013 2014 The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have 4 About the Whitepaper • Tells the story of the personal loans ecosystem over the past decade through the lens of Big Bank incumbents as well as from the vantage point of the emerging next generaFon players • AHempts to answer important quesFons such as: • Why did the Banks shut down their personal loans business units? • What caused Prosper and Lending Club’s recent acceleraFon? • Why haven’t the Banks re-‐entered the personal loans space? • Will the next generaFon plaQorms be here for good? • The paper wraps up with a look into the future and discusses five disFnct scenarios and their likelihood of occurring 5 The Story in Brief Economy Banks P & LC • Great Economy • Growth Mandate • Launch of an idea • Consumer Levering Up • Tough CompeFFve Landscape • Wild West • Home as an ATM Machine • Book Now, Fix Later 6 The Story in Brief Economy Banks P & LC • Great Recession • Ugly Forecast • Capital Raises • Government IntervenFon • ExFncFon Event • Governed by the SEC • Book Now, Fix Later • Managing the Imbalance • Dodd-‐Frank Act • CARD Act • HELOC Collapses 7 The Story in Brief Economy Banks • House Prices Bounce Back • HELOC business sFll challenged • Household De-‐ Levering • Credit Card business structurally disadvantaged • Analysis Reveals Insights P & LC • Imbalance Solved • Big Opportunity • Just Add Water Capital • Why Take the Risk? 8 The Story in Brief SCENARIO #1 The Emergence Of The SBU • A large Bank could re-‐launch its personal loans business as an SBU • Separate the SBU from the core business • Staff with dedicated talent and use dedicated systems • Stop the transfer pricing madness and run as a true P&L ODDS OF THIS SCENARIO OCCURRING: LOW 9 The Story in Brief SCENARIO #2 One Bank Wakes Up • A large Bank could acquire a major personal loans originaFons plaQorm • Leave it alone with a few excepFons: capital markets/treasury, compliance and finance • Shut down most/all lenders on the plaQorm and fund originaFons volume using the exisFng deposit base ODDS OF THIS SCENARIO OCCURRING: LOW TO MODERATE 10 The Story in Brief SCENARIO #3 Status Quo • The Banks conFnue to ignore the next-‐ generaFon originaFons plaQorms • DiversificaFon of lender capital is criFcal for weathering a credit cycle • DiversificaFon of asset classes is criFcal for sustained growth • PlaQorms need to be keenly aware of the Regulatory environment and any re-‐ levering of consumers’ personal balance sheets ODDS OF THIS SCENARIO OCCURRING: MODERATE 11 The Story in Brief SCENARIO #4 Knife Fight • Hyper-‐compeFFve environment for finding high quality borrowers • Channel partners win • Low cost/high efficiency plaQorms win • PlaQorms that have access to unique sources of applicant volume win • “Me too” players lose ODDS OF THIS SCENARIO OCCURRING: MODERATE TO HIGH 12 The Story in Brief SCENARIO #5 Lending as a Service • Large plaQorms have become foundaFonal businesses in the Banking ecosystem • 13,000 Banks are deposit rich, lending asset poor and are beHer off using these plaQorms than managing programs themselves • Non-‐Banks can start to lend to their customers with ease • Enables the ability to assemble a porQolio that meets their internal needs while serving their enFre customer base ODDS OF THIS SCENARIO OCCURRING: CERTAIN 13 For the whole story you can find the paper at www.fintechjunkie.com 14
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