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Launching: Self Lender Helps Build Credit with Digital "Credit-Builder" Loans

By Jim Bruene on September 9, 2014 4:55 PM | Comments

image Ever since the financial debacle of 2008, it's been harder for consumers to establish their first credit account. Therefore, with no credit history or score, it becomes even harder to get credit. That's created a Catch-22 around new credit that Denver-based startup Self Lender looks to address. The company launched today at TechCrunch Disrupt (see full presentation here, at bottom of post).

Self Lender has a fairly straightforward value proposition.

  • Agree to transfer a certain amount of money to yourself for a set period of time via the Self Lender platform.
  • Self Lender reports the payments to credit bureaus as a secured loan.
  • At the end of the contract period, between 3 and 12 months, the user gets their money back (without interest) or can use the funds as a down payment on a vehicle or other item with the balance financed by Self Lender lending partners (see screenshot below).

The funds are held in an FDIC-insured account. Users can make their monthly transfers via ACH, debit card, paper check/money orders, or via cash through PayNearMe's network. The startup also will accept bitcoin payments, an interesting side note that wasn't mentioned during their demo.

Self Lender will make a few dollars on interest and lead-gen commissions, but its primary business model revolves around charging $3 per month for the service.

Thoughts: Many banks and credit unions offer products with similar benefits. According to CUNA (note 1), 15% of U.S. credit unions offer "credit builder loans." Banks and credit unions also offer CD/saving secured loans. But those deposit-secured loans generally require a good sum of cash to get started. For example, Wells Fargo has a $3,000 minimum deposit and $75 origination fee. Self Lender lets you get started with just $25.

So, the concept is good. But I think it will be difficult for the company to get consumers to entrust them directly, so distribution through FI or PFM partners is crucial. To that end, during the Q&A session, Self Lender said it was hoping to ink deals with one or more major banks in the near future. 

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Self Lender demonstrates how the money saved in the platform can be used as down payment (9 Sep 2014)

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Note:
1. Source: NY Times, 6 Feb 2012. http://bucks.blogs.nytimes.com/2012/02/06/credit-builder-loans-can-help-burnish-your-credit-score/

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The Rise (finally) of Online Specialty Lenders

By Jim Bruene on May 28, 2014 4:15 PM | Comments

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One thing that always struck me as odd about the financial services startups of the late '90s and early 2000s, was their obsession with deposits. I can understand the appeal of having people send you money; it's a rock-solid, low-risk part of the banking business model. But it also contains massively entrenched players who already have the consumers' trust, along with a vast branch network to back it up. And it's a commodity.

The much bigger opportunity for newcomers, I have always thought, was to go after the loan side. Consumer trust is a almost a non-issue since you are handing them the money. And loan underwriting is both an art and a science with thousands of variables to innovate on. 

But it's a dicey area for investors. The economic downturn of 2000-2002 spooked the VCs as dotcom darling NextCard went belly up (as did other non-online sub-prime lenders). Then the big hit in 2007/2008 killed whatever business plans had been drawn up in the post-2002 period. And there is always concerns about where to find more funds to lend out, especially in the post-securitization world.

Fast-forward seven years. We are finally seeing an explosion of consumer and small business lending online (with mobile coming on). This newfound activity is being led by the so-called crowdfunders and P2P lenders tapping institutional money along with accredited investors (and VCs) to deliver capital using a mix of debt and equity terms.

Another specialty lending area exploding online is secondary educational financing (note 1). For example, Sofi started by targeting graduates of elite U.S. universities. CommonBond is focusing on graduate students. ProdigyFinance lends to international MBA students.

The latest entrant in the educational space is CoderLoan (screenshot below). The NYC-based startup is working with employers and educational institutions to help finance participants in coding bootcamps, where tuition can run $10,000 for a summer-long program. Employer sponsors can repay the CoderLoan after a set amount of time on the job. Or the graduates themselves can afford to repay the loans with their developer-level salaries.  

Bottom line: The uptick in digital specialty lending is win-win-win. There are potentially good returns for investors (note 2) while more capital flows to both entrepreneurs looking to expand and employees wanting to sharpen skills. Ultimately, that leads to a more productive and engaged workforce and a more rigorous economy. 

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CoderLoan homepage (link, 27 May 2014)

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Notes:
1. For a 38-minute discussion on crowdfunding student lending, check out the panel at the Lendit conference in San Francisco three weeks ago (link). The panel included Vince Passione, LendKey; Mike Cagney of SoFi; David Klein of Commonbond; Cameron Stevens of Prodigy Finance; and Brendon McQueen of Tuition.io.
2. Most of the activity is too recent to fully understand whether the risk is being priced adequately (see NextCard in 2002), but the results from the earliest entrants -- Zopa, Prosper and Lending Club -- are promising.
3. For much more on crowdfunding (debt and equity), see our May 2013 report (subscription).

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Fintech Four: Banno, Borro, Personetics & Auction.com are on a Roll

By Jim Bruene on March 5, 2014 12:40 PM | Comments
It's been a crazy week in fintech, and it's only Wednesday morning. Because my brain can hold no more than four stories at a time (and that's a stretch), it's time to publish a "fintech four" mid-week. I don't know which of these is more dramatic, so I'll go in alphabetic order: 

1. Auction.com joins the billion-dollar fintech club

Thumbnail image for auction.jpgI'm not sure everyone considers Auction.com a fintech play, but as an online asset sales platform (which moved $7 billion last year), it's close enough for me. It just raised a fresh $50 million from Google Ventures at a valuation of $1.2 billion. So I'll be adding Auction.com to our "Fintech billion-dollar club." 

>>> Metrics and more from Bloomberg here.


2. Banno acquired by Jack Henry

banno.jpgWhile we don't know the $$ number, given the traction Finovate alum Banno had in the market (375 bank clients), and the relatively high valuations in the fintech space these days ($1.75 billion for Stripe), this must have been a pretty nice payday for the owners and investors in Iowa-based Banno (formerly T8 Webware). Founder Wade Arnold is staying on at Jack Henry and is super excited about his future with the Kansas City-based technology vendor. 


English: Wordmark of Borro, the characters &qu...
3. Borro borrows $112 million

In one of the biggest fundraising rounds in fintech history, UK-based Borro landed $112 million to further its high-end online pawn brokerage business. I met founder Paul Aitken last fall and was impressed with the product, which allows consumers to borrow against non-liquid assets like that Jacob Lawrence in the hall, at pretty high rates (3% to 4% per month). Until then, I had no idea there was a large, underserved (near prime?) market holding high-end assets (outside Downton Abbey anyway). Even so, I was shocked to see a $112 million round. While terms of the deal weren't disclosed, I have to believe all or part of the money is debt, not equity. So I'm not going to add Borro to the billion-dollar club, yet. Apparently online lending is back! 

>>> Average loan amount = $12k (against a $20k value)... see Press release
>>> TechCrunch breaks down the Borro loan process and metrics here


4. Personetics is on a roll

pesonetics.jpgAt this week's Bank Innovation great event in Seattle, I finally had a chance to meet face-to-face with Personetics, the Sequoia-backed "predictive financial services engine." I've been impressed with what I've read about the company, and loved the Fiserv demo at FinovateEurope last month (demo here) featuring a forward-looking PFM piece powered by Personetics. But I had no idea how much traction the company was gaining in less than three years since its A-round. While I can't name names, if even one of these deals moves into production, it has the potential to change the face of online banking. 

>>> Fiserv demo at FinovateEurope featuring insights powered by Personetics here (12 Feb 2014)

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Umpqua Bank Launches Mortgage Sales Tool: Home Hunter

By Jim Bruene on September 27, 2013 9:39 AM | Comments

image Ever since I saw CEO Ray Davis speak at BAI in the mid-1990s, I've been a huge Umpqua Bank fan. But most of the bank's notoriety is around its fresh take on the brick-and-mortar experience. But that's not my thing, at all, so I don't get a chance to write about them often.

However, today I was delighted to see a new mobile app appear in the iOS store called Umpqua Home Hunter. It's a simple tool for house hunting. When a home buyer runs across a home of interest when out and about, they can open up the Home Hunter and automatically document the address (via GPS), then add comments, pictures, and a 1-to-5 star rating (see screenshots below).

There is also clever integration to Umpqua lenders. Users can forward the house to the lender of their choice to start the mortgage prequalification process (see third screenshot). 

Bottom line: While the app is pretty basic, lacking integration to home value databases such as Zillow, or MLS/Realtor services such as Redfin, it could recoup its development costs with a couple incremental mortgages every month. And even if it fails to do that, it's a novel mobile service that helps position Umpqua as an innovator in digital, like they've long been in branch banking. 

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Users add a home details                    ....pictures, comments, rating

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Below left: Users have the option to send homes over to their Umpqua
loan officer to get the mortgage process started

umpqua_mtg_app.jpg

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Note: For more on mobile banking and/or online lending, see our Online Banking Report archives (subscription).

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Launching: Zazma Offers Drop-Dead Simple Short-term Business Credit

By Jim Bruene on September 4, 2013 6:39 PM | Comments

image To continue our look at outstanding lending UI's (previous post), I present to you Zazma. The startup, which came out of stealth yesterday, has raised $10 million to finance small loans of $300 to $5,000 for up to 60 days. The initial funding came from Sequoia and Spark Capital.  

This is a business that almost no bank wants, which makes it ripe for startups. But it can be lucrative. Because the business borrowers are using the money to buy needed equipment or inventory, they are much less focused on the interest rate, if they believe the cash advanced will earn them a profit. It's the secret sauce of successful startups Kabbage, Capital Access Network and On Deck Capital (note 1). 

As you can see from the screenshot below, the maximum loan, $5,000 for 60 days, earns Zazma a healthy $295 fee. Assuming it's paid back, that a 6% return over two months or an annual APR of 36%. While that's not enough of a return on VC funds, once the company has enough of a track record to attract debt funding, that could be a sustainable revenue model.

The company hopes to attract sellers who will offer Zazma-powered financing to their customers. That could be a real win-win. And because each transaction can potentially satisfy two businesses, it's a model that bank's should consider.  

The UI
While the business model is very promising, what I really love is their UI. Absolutely simple, with fewer words than Google's famously simplistic design. Potential borrowers type the loan amount, choose the payback date and press the large, red Get Funded bar. The applet automatically shows the amount that must be repaid.

It's a fantastic start to the borrowing experience, which I have not tested. Because this is business credit, they can avoid talking about the interest rate. But there is nothing hidden here. It is a model of simplicity and transparency. 

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Zazma homepage (4 Sep 2013)

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After clicking Get Funded, the box opens to ask for name, company and email

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Notes:
1. Follow these Finovate alums at our Finovate blog.
2. For more on small business services, including credit, see our Online Banking Report on micro and small businesses (subscription, published Oct 2009).

Comments

Lenders: Making a Good First Impression

By Jim Bruene on September 3, 2013 2:04 PM | Comments
introvert.jpg

I know banks have been stung by various public floggings over the past five years. But sometimes they are too shy for their own good.

During normal times, a big chunk of retail profits come from lending. Yet, many bank websites make loans (other than mortgage and credit cards) look like a minor product line. Kind of like the AA batteries for sale at the Best Buy counter.

US Bank's newly remodeled website is typical (note 1). Yes, you can find loans across the top navigation (good). But the bank makes users select from a dropdown list to find exactly what they are looking for. It's not a bad approach, but it's fairly passive (see first screenshot below).

Compare that to UK's Hitachi Personal Finance (second screenshot). The lender uses its homepage to  explain its core benefits (low rates and quick turnaround) and lay out the various loan types (personal, auto, furniture, leisure, trade, environmental).

Bottom line: In the United States, we have probably reached "peak checking account fee income." And you can't bank on deposit values going back to 5% any time soon. Let's face it, loans are where the money is for the foreseeable future (note 2). So its time to stop being a loan introvert and sing their praises from your online and mobile outposts.

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US Bank requires users to select a specific loan type before drilling down for more details (3 Sep 2013)

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Hitachi Personal Finance (UK) (link)

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Hovering over one of the loan types brings up a short description

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Notes:
Image credit
1. I'm sorry I'm picking on US Bank, it just happened to be the first URL I typed in.
2. Also, insurance sales have a very robust future, though that a topic for another day (see our full report here, Dec 2011, subscription)

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Crowdfunding via Facebook: Puddle's P2P Platform Allows Friends to Pool Funds to Loan to Each Other

By Jim Bruene on June 3, 2013 4:37 PM | Comments

image When Prosper launched seven years ago, much of it's initial promise revolved around the notion that people would be more likely to repay loans made by their peers. To  create peer pressure, borrowers were encouraged to join loosely affiliated "groups" (see note 1). Over time, groups with good repayment performance would be rewarded with lower borrowing costs.

It was brilliant on paper, but early repayment behavior didn't follow the model. Had there been more runway (funding and/or regulatory tolerance), it might have worked. But the wicked combination of adverse selection (many initial borrowers were financially desperate and/or quasi-fraudulent, despite all the heart-warming stories posted) and the Great Recession pushed Prosper, and it's contemporary, Lending Club, into more standard unsecured lending procedures. And it seems to be working. The two are on track to do more than $2 billion this year, with revenues of $100 million or more (Note: 85% of current volume is from Lending Club, see latest numbers here).

Fast-forward five years: With the ubiquity of Facebook, it makes sense for newcomers to test the waters of the original Prosper/Lending Club hypothesis (note 2). That friends can lend to friends (F2F) at a far lower cost. And that a third-party platform is needed to facilitate lending relationships, which can become tense if borrowers fall behind or default on their obligations.

imagePuddle (formerly Puddle.io) is a new startup from Kiva CEO & Co-founder Matt Flannery and early Kiva developer Skylar Woodward along with Jean Claude Rodriguez. It uses Facebook bonds to create pools of money that friend groups can share amongst themselves. With suggested interest rates in the 4% range, it's a win-win, assuming the money is repaid. Borrowers save 10% or more from credit card rates and lenders get a return much higher than bank savings accounts.

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How it Works
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1. Register with the company using your Facebook credentials

2. Connect a PayPal account or debit card to the platform (Wells Fargo holds the money)

3. Start a new "puddle" by setting the rate from 0% to 20% (current average is 4.7%, see inset) and the maximum leverage rate (you can only borrow a multiple of what you put into the pool, the allowable range is 2:1 to 10:1 with the recommended rate of 8:1).  

4. Invite Facebook friends to throw cash into the pool

5. Borrow from the pool (if that is your intent). Currently, loan sizes range from $300 to $3,000 with repayment on an installment schedule spread over a maximum of 12 months (current average outstanding is $320 across 50 borrowers). You can only borrow a max of 40% of the entire pool.

6. Puddle manages the repayment process, including assessing late fees (the late penalty is equal to the interest owed on the previous month's installment, i.e., you pay double interest if late)

7. As funds are repaid, they become available to other members of the pool to borrow.  

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Analysis
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Like Prosper/Lending Club in 2006/2007, the Puddle model sounds great in theory. But should friends be encouraged to lend to their friends online? I can see this ending badly, with unfortunate borrowers losing more than just the $1,000 they took out of the pool. With a public default to your (ex)friends, will a bad situation just get worse?

But given the founders experience at online microfinance leader Kiva, which has spread $440 million around the globe from nearly 1 million lenders, they fully understand the pitfalls. They also know that affordable credit can change lives.

Bottom line: I think it's a great experiment (and it is an experiment, the founders admit to not knowing how they will monetize or how regulators will react). But I'm not sure it scales without more financial controls (underwriting, collections, income verification) at which point it becomes nuch like Lending Club in 2007 (though not a bad outcome...given the P2P pioneer's recent $1.6 billion VC valuation).

I'd like to see financial institutions (or accredited investors) stepping in to backstop the loans (perhaps keeping the default confidential). For example, for a 4% to 5% annual fee, investors would agree to reimburse the pool for 80% to 90% of losses from any defaulting borrower. The fee would vary depending on the credit profile of borrowers in the pool. While borrowing costs would be significantly higher, down-on-their-luck borrowers would be less likely to lose their friends just when they needed them most. 

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Puddle dashboard (active user)

Puddle dashboard


The Puddle dashboard through the eyes of a new user
Note: The great definition in box 1, "A puddle is like a small bank owned by you and your friends. You set the rules."

Puddle new user "get started" screen

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Notes:
image1. For a review of circa-2006 Prosper "groups" see our March 2006 report on P2P lending (subscription).
2. Lending Club initially launched as a Facebook-only p2p lending service (our original 25 May 2007 post). The original Lending Club Facebook page is shown at right (click on inset). 
3. For the latest on crowdfunding, see our latest Online Banking Report on Crowdfunding (subscription).

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New Online Banking Report Published: Crowdfunding Small Businesses

By Jim Bruene on May 27, 2013 11:09 PM | Comments

clip_image002We believe crowdfunding has the potential to materially impact banking market share in the next 20 years. Tapping the massive capital and higher risk tolerances of institutional and individual investors, these platforms will provide funding to segments currently underserved by traditional lenders (e.g., small and micro businesses).

We've written extensively about the consumer debt-based crowdfunding, which we've called P2P, or peer-to-peer, lending (note 1). Now, we turn to the new crop of startups arranging funding for small businesses and startups.

The report covers the three variations that promise financial returns to investors (note 2): 

  • Debt-based financing (crowdlending)
  • Equity-based funding (crowdinvesting)
  • Receivables-based funding (crowdfactoring)

Sixteen crowdfunding platforms are profiled, eight in the United States and eight in the United Kingdom:

Debt:

  • Abundance Generation
  • Bolstr
  • Funding Circle
  • Mosaic
  • RealtyMogul
  • Relendex
  • Sofi
  • SoMoLend
  • ThinCats

Equity:

  • AngelList
  • CrowdCube
  • FundersClub
  • Seedrs

Receivables:

  • Market Invoice
  • P2Binvestor
  • PlanetBlack

Finally, we look at specific opportunities for retail banks to leverage the new technology.

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About the report
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Crowdfund Investing Platforms: Debt & Equity (link)
Payments in the smartphone era

Author: Andy Davis, U.K. Financial writer

Editor: Jim Bruene, Editor & Founder

Published: 21 Feb 2013

Length: 68 pages, 24,000 words, 5 tables

Cost: No extra charge to OBR subscribers, US$495 for others (here)

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Notes:
1. We have published three reports in this area (OBR 127 in 2006, 148/149 in 2007, and SR-5 in 2009). In addition, we've created a 10-year forecast for U.S. P2P lending in each of our last six year-end reports.
2. We do not cover the donation or rewards models, such as Kickstarter. While those are effective ways for businesses to raise money and/or visibility for new products, they have fewer parallels and opportunities for retail banks.

Comments

Mobile Marketing: USAA Embeds Preapproved Loan Offers within Mobile App

By Jim Bruene on May 9, 2013 11:33 AM | Comments
usaa_mobile_preapproved.jpg

Now that the U.S. personal credit crisis of 2008 to 2010 is in the rear-view mirror (but still visible), banks and credit unions are getting more aggressive with credit. And guess what new marketing vehicle is available in 2013 that didn't exist five years ago? Yep, mobile this and mobile that.

So far, the sales component in mobile banking has been minimal. Generally, users must already be a customer of the bank and even pre-registered with online banking. And cross-selling? About the only thing you can buy remotely is an ATM withdrawal.

But that will change as more customers only deal with their bank and cards through mobile apps, a number that is already pushing 30% of the online banking base of Bank of America (see previous post).

Eventually, most financial products will be sold through the mobile app. Not convinced? Look internationally where mobile was a thing even before the iPhone. I still remember Bankinter's 2007 BAI Retail Delivery presentation where they said 20% of their retail interest-rate swaps were done via mobile phone.

In the United States, we are starting to see banks pushing the envelope. USAA has been the leader in most areas. So no surprise that they are the first (that I know of) to place preapproved credit offers within their mobile app (see screenshots below).

In the bank's Dec. 2012 update (see inset), it added the ability to:

  • Accept pre-approvals in the app
  • Apply for checking and savings accounts in the app
  • Apply for life insurance after getting a quote in the app

Bottom line: The power of the pre-approved credit offer is well known. Traditionally, snail mail has been the medium of choice. But that's expensive, time-consuming, and oftentimes not delivered at the optimal moment. Delivering offers via mobile phone can solve all those problems.

And as an added bonus: The sales results will create a better business case for your entire mobile initiative.

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USAA delivers preapproved credit card offer within its mobile app (Dec 2013)
Note: Screenshots shown are from a customer with an existing USAA life insurance relationship.
Price disclosures (right screenshot) displayed after clicking "Rates and Fees" under "Accept Offer" (left screenshot)

image         image

Source: comScore Q4 2012, Mobile Financial Services Advisor

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Note: We cover online mobile delivery and marketing in depth in our subscription-based Online Banking Report.

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PayPal Integrates Bill Me Later "Application" into New Account Signup Process

By Jim Bruene on February 26, 2013 9:35 PM | Comments

image As I was researching yesterday's post on PayPal's "plastic wallet," I attempted to sign up for the company's Anywhere card. Surprisingly, you are unable to get one if you have a business designation on your PayPal account.

So, I signed up for a new PayPal personal account. The process has changed considerably since I last signed up, 13 years ago. One of the most interesting improvements is how it positions the Bill Me Later credit option.

After putting in my name, mail address, mobile number, email address and desired password in the first screen, I was instantly set up with a new PayPal account. At the top of the confirmation page (see below) was a prominent, "Use your account instantly." Then, users are prompted to add their birth date and Social Security Number, and to agree to the terms.  

This Bill Me Later add-on is not required to use PayPal. There is a small gray button in the lower right to defer the credit app. But the application is so seamless, and so painless, I bet most users complete it (note 1).

Bottom line: This could be an effective way for banks and credit unions to upsell overdraft credit lines or credit cards during the checking account opening process. 

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Bill Me Later option presented during new PayPal (U.S.) account signup (22 Feb 2013)

Bill Me Later application served in-line with PayPal new account signup

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Note:
1. In my case, I left my computer for some time and my session timed out, so I lost the opportunity.

Comments
Categories: Loans & Credit, PayPal

Design: Pelican State Credit Union Reinforces Auto Loan Mailer with Homepage Notification

By Jim Bruene on December 18, 2012 1:31 PM | Comments

image Integrating offline marketing with online fulfillment is a promising way to improve ROI. Pelican State Credit Union grabs member attention with a temporary yellow bar across the top of the page (see screenshot below). It directs members that received an auto loan direct mailer to an online application.

I like this approach. It garners attention for the offer, but the narrow banner disappears permanently once users click the X in the upper-right corner. 

However, this extra attention can be a mixed blessing. It's great for those members that received the offer (and remembered they did). But for everyone else, they are left scratching their heads after clicking "more info." 

The landing page doesn't mention how to check whether you were one of the chosen recipients or how you might otherwise qualify for the deal. It also does nothing to reinforce the offer, which apparently was for an auto refinance. The slim copy simply points everyone to the generic online application. 

Bottom line: The yellow bar across the top is a great way to grab attention. But, you need to answer basic questions about the promo or you risk irritating members (see note.

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Off topic: The CU is nicely decked out for the holidays with three timely messages among its five rotating promos: 

  • Visa Gift Cards, which unfortunately, require a trip to the branch to purchase (see first screenshot)
  • Double rewards points for using its Visa card in December
  • General holiday greeting, which leads to a YouTube picture collage with music

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Pelican State Credit Union adds an Auto loan promo reminder at top of page (18 Dec 2012
Note: The CU also is nicely decked out for the holidays.

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Landing page for Auto Loan Refinance mailer
Note: Blank box on left makes the page look like something is broken.

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Note:
1. The CU has a prominent "chat now" button, so interested members could potentially get a quick answer there, assuming CSRs manning the chat are equipped to determine eligibility.

Comments

12/12/12 Credit Union Promotions

By Jim Bruene on December 12, 2012 12:12 PM | Comments

imageLast year, we were disappointed at the lack of promotions on double-triple-digit day, finding just a single promo 11/11/11 promotion (see our post on Notre Dame FCU). But it was Veteran's Day and most U.S. banks were closed.

This year, 12/12/12 falls at a much better time in the promo calendar, and FI marketers responded, at least on the credit union side. In the first five pages of Google results we found 15 CU promotions, most offering 12-month, $1,200 loans.

However, it turns out that "12/12/12 loans" are regular December fare at a number of credit unions. Only four of the 15 were focused on the once-in-a-hundred-years date, one on the deposit side and three low-rate loan specials (note 1).

The standout deal? A 0.12% APR on a $1,200 loan from L'Oreal USA FCU

Here are the four CU 12/12/12 promos:

  • L'Oreal USA Federal Credit Union: 12-month, $1,200 loan with with APR = 0.12% (requires payroll deduction & estatements; link, screenshot #1)
  • Meadowland Credit Union: 12-month, $1,200 loan with rate as low as 1.2% (direct deposit & checking account required; link, screenshot #2)
  • Notre Dame Federal Credit Union: 120-day loan of $1,212.12 at an APR of 1.1212% (requires opening new credit card; link, screenshot #3)
  • USAlliance FCU: 12-month, 1.2% APY CD (new money only; link, screenshot #4)

Other 12/12/12 loan seemingly unrelated to Dec 12, 2012 (with links to the loan page):

  • Carolina Foothills FCU (link)
  • Clackamas FCU (link)
  • Ecusta Credit Union (link)
  • Freedom FCU (ran during the summer, link)
  • Fremont FCU (link)
  • Gulf Coast Educators FCU (link; see banner at top of post)
  • John Hopkins FCU (link)
  • Northwest Georgia Credit Union (link)
  • Northwest Resource FCU (link)
  • SRP Federal Credit Union (link)
  • Telhio Credit Union (link)

No banks seem to be joining the fun. Although Chase was promoting its sponsorship of the 12/12/12 Sandy benefit concert with an AdWords buy on Google yesterday (screenshot 5). 

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1. L'Oreal USA FCU is offering a rate of just 0.12%
Note: Interest totals just $0.78 over the life of the loan, payroll deduction required

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2. Meadowland Credit Union worked Aaron Rodger into its promo

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3. Notre Dame FCU is the only FI that ran promotions on both 11/11/11 and 12/12/12 promotions
(11 Dec 2012)

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4. USAlliance FCU was the only one with a deposit special

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Chase Bank is the headline sponsor of a Sandy benefit concert (link)

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Note:
1. We searched for "12/12/12 promotion credit union" and found many entries. The same search with "bank" instead of "credit union" turned about nothing (at least through the first dozen pages of results).

Comments

Alt-Biz-Lenders Kabbage, On Deck Capital and Capital Access Network Disrupting Business Loan Underwriting

By Jim Bruene on October 24, 2012 10:56 PM | Comments

image My favorite session at Money2020 Expo, the massive new trade show organized by Google Payments execs(see note 1), was about as far away from the buzzy mobile wallet and payment schemes as one could get.

I was struck by the potential of alt-business lending. The technology could have a more lasting economic benefit, at least in developed countries, than the transition from plastic to mobile payments (note 2).

The session included the three key alt-biz lenders who are leading the way in disrupting the massive global market in commercial credit (note 3):

  • Glen Goldman, CEO, Capital Access Network (FinovateFall 2010 demo)
  • Kathryn Petralia, Co-founder & COO, Kabbage (FinovateSpring 2012 demo)
  • Noah Breslow, CEO, On Deck Capital (FinovateSpring 2012 demo)
  • image  image   image

    Like most disrupters, the three are gaining traction in a narrow niche largely avoided by legacy players: sub-$250k non-asset-backed commercial lending. In total, the three are on track to do roughly $2 billion in total lending next year. While impressive, that's not the big story. The disruptive piece is the technology the three use to underwrite the loans.

    They are redefining the borrower-lender relationship with real-time, ongoing electronic monitoring. Instead of borrowers providing static financials after the fact, these lenders have been granted access to the daily receipts of the business (via online banking), so the lenders know every day whether they should expand or contract the loan amount authorized. The lenders also get repayments frequently, sometimes daily, which helps reduce risk. 

    The result is that these companies are able to provide credit to businesses that are unable to get a loan elsewhere because they are just too small and/or the entrepreneurs don't have the necessary personal FICO scores (note 4).

    Capital Access shared an interesting story on stage. Apparently, they were pitching their service to a very large U.S. bank. Capital Access had extended $245 million in loans to the bank's customers which came as quite a surprise to the bank. However, when they found out the FICO scores of the biz owners were terrible (in the 500s), the bank said those could not be good loans. But it turns out the Capital Access loans had a 2.2% charge-off rate, bettering the bank's rate on its "lower-risk" borrowers.

    Given that the short-term loans were made at rates of 15% and up, that is one massive chunk of lost revenue.

    I talked to Noah Breslow, CEO of On Deck Capital, later that night, and he said they are seeing huge upticks in demand, which they are now able to meet with much cheaper capital recently acquired from Goldman and others. He said their 10-month-old program looking at US Bank business-card declines was showing great dividends for all parties. And they continue to actively seek more bank partners which can participate in a variety of ways.

    Bottom line: I believe that eventually most business credit (from banks and others) will be managed with this real-time transparency into the borrower's finances. It allows the lender to better price the risk, which assuming sufficient competition, allows more credit to be granted, at better overall prices. Banks, you don't have to do this all at once. But at least start working with one or more of these companies to give your loan declines a second look (note 5).

    ---------
    Notes:
    1. Money2020 organizers, Anil Aggarwal and Jonathan Weiner, are serial entrepreneurs behind payments startup TxVia which Google acquired this spring. Money2020 (v1) attracted more than 2,000 attendees to its inaugural 3-day event held in Las Vegas. It was an amazing turnout, which speaks to the interest in Google Wallet, mobile payments, and Finance 2.0 in general. Kudos to the team that pulled together a mind-boggling 300+ speakers across 5 tracks over 2 and a half days.
    2. And I'm not downplaying the impact of the mobile-payments revolution, which has the potential to save billions in fraud and waste while creating enormous opportunities with card issuers large and small in advertising, loyalty, and so on.  
    3. I should also commend moderator Nick Holland (Yankee Group) who fed the participants great questions.
    4. The lenders all addressed the small-business owner "credit catch 22." Certain things that can lead to business growth, such as quitting your day job and maxing out your credit cards, kill personal FICO scores, even though they are exactly what the entrepreneur should do to maximize business results.
    5. According to CEO Glen Goldman, Wells Fargo is currently referring customers it can't help to Capital Access Network.   
    6. For more info on small biz online/mobile banking and lending, see our Online Banking Report on micro and small businesses (subscription, published Oct 2009).

    Comments

    Out of the Inbox: Prosper Markets to Small Businesses

    By Jim Bruene on March 1, 2012 7:47 PM | Comments

    image Everyone says that business startups are a huge driver for economic growth. So, when was the last time you received a solicitation for an unsecured loan to start a business (note 1, 2)? It may not be unheard of, but it's rare, especially since 2008.

    So today's email from P2P loan pioneer, Prosper, really grabbed my attention (see screenshot below). Not only were they targeting a segment that's generally overlooked, they were doing it an effective way. The direct subject line, striking graphic, and concise copy, are guaranteed to get the message out.

    My only concern is the reliance on the super low, 6.59% rate showcased (for AA borrowers, see highlighted section below). While it's not a teaser rate, it's also one that's not readily achievable for most people needing $25k to start a business. I'd rather see Prosper list the rate for a more typical borrower, or at least show a range of applicable rates.

    Still, I give it an A-, because most borrowers savvy enough to start their own business understand that "....starting at" means something higher at the end of the process.

    --------------

    Prosper email to registered users (1 March 2012; 1 PM Pacific Time)
    Note: Social media call to actions at bottom of message.

    Prosper email to business startups

    Landing page
    Note: Interested borrowers are dumped on a generic signup/login page. It seems like there should be some tie-in here to the email call to action.

    Prosper landing page

    -------------------------
    Notes
    :
    1. Chase offered a great program in 2010 where business borrowers were given a lower rate for hiring new employees. However, it wasn't targeted to startups.
    2. I'm not on their mail list, but I know Silicon Valley Bank aggressively pursues startup businesses for financing deals.  
    3. We've covered P2P lending a number of times in our subscription service, Online Banking Report including updated U.S. forecasts in our Jan. 2012 report.

    Comments

    Kickstart Your Banking Community with Crowdfunding

    By Jim Bruene on February 13, 2012 4:59 PM | Comments (1)

    image

    image If you read much tech news, you've probably heard about Kickstarter, or at least their most famous project that helped a budding entrepreneur make watches from iPod Nanos (above).

    Kickstarter is the best known (note 1) of the so-called crowdfunding sites where the Internet is invited to help fund new projects in return for recognition and/or a tangible good related to the project. Kickstarter focuses on the arts world, helping connect artists, designers, publishers, and performers with patrons around the world, who kick in as little as a $1 to help get a project off the ground. There are dozens of others focusing on other areas as well. 

    You're a Backerimage I used Kickstarter this weekend to fund publication of a new comic book called Steamfunk (screenshot below). I came across it when searching for local Seattle-area projects.

    My niece is a steampunk fan, so I thought it would be a nice surprise for her. I dropped $15 into its pledge drive, and assuming the artist Zilla Doty receives at least the $3,000 he was seeking (note 2), in April I'll have a signed copy of his inaugural edition to send to my niece (note 3).

    Not only do I get a cool one-of-a-kind gift, I gain the satisfaction of helping a local artist get a project off the ground. Very gratifying.
    _______________________________________________________________________

    Bank Opportunity
    _______________________________________________________________________

    I bring this up, not because it's a slow news day, but because I think leveraging crowdfunding could be a good way for community banks or credit unions to distinguish themselves in the local market. It would not be an easy project, getting people to part with their money never is, but it has the potential to attract new small business clients while supporting your community.   

    Here's how it would work (note 4):

    1. Bank sends customers to a third-party crowdfunding site, which could be operated independently, or private-branded for the bank

    2. Bank publicizes new community projects via its website, blog, Facebook page, and so on

    3. OPTIONAL: Bank offers to match the crowd's funding with a credit line/loan (if needed and assuming reasonable credit risks) or other banking services

    For extra credit: Integrate crowdfunding with peer-to-peer lending. 

    ------------------------

    Kickstarter project page
    Note: This is how it looks after you've made a pledge

    Kickstarter project page

    ----------------------------------

    Notes:
    1. According to Compete, Kickstarter had 750,000 unique U.S. visitors in Dec. 2011.
    2. With 20 hours to go, the project has easily surpassed the $3,000 goal. 175 backers have pledged almost $5,000.
    3. The pledge process is very smooth. Payment is made when you make the pledge and fulfilled through Amazon Payments. If the project fails to reach 100% funding by the end date, you get your money refunded. According to the company, 90% of the projects who make it past the 25%-funded mark end up with 100% funding. That's an amazing stat.
    4. No, I don't have a clue what objections you might get from compliance, but I'll bet it will be an interesting conversation.
    5. We haven't written specifically about crowdfunding at Online Banking Report, but we've covered P2P lending and small biz banking services.

    Comments (1)

    Out of the Inbox: Repossessed Vehicle Auction Announcement

    By Jim Bruene on December 29, 2011 4:07 PM | Comments

    image As a semi-reformed eBay addict, anything with auction in the title still grabs my attention. And of the thousands of emails I get from banks every year, I believe this one from Ohio Valley Bank is the first ever for a vehicle auction. 

    If you are selling off repos and REOs, you should let your customers get on a mail list announcing them. You could even turn it into a membership benefit, giving customers first crack at the deals and/or providing preferential financing.

    Ohio Valley offers preapproved auction financing for its repo sales. A good move, although its landing page and online app could use a facelift (see second and third screenshots).

    ---------------------------

    Ohio Valley Bank email announcing vehicle auction (link; received 29 Dec 2011; 6:35 AM Pacific)
    Note: I am not a customer of the bank, but anyone can sign up for its emails.

    Email from Ohio Valley Bank announcing its next vehicle auction

    Landing page for auction financing (link)

    Landing page for auction financing

    One-page online loan app (click to enlarge; link)

    image 

    ----------------------------------

    Note: Ohio Valley Bank has a prominent link on its homepage to its holiday hours, a nice touch (see picture upper right).

    Comments

    Cyber Monday in Banking

    By Jim Bruene on November 28, 2011 4:46 PM | Comments

    imageI've written about Black Friday promotions at ING Direct (see note 1), Service Credit Union, and the growing Small Business Saturday event spearheaded by American Express (which even earned a tweet from  Obama).

    This year I also noticed a trickle of activity on Cyber Monday as well. It's probably better than Black Friday for online/mobile campaigns. Better yet, use the approach of Visions FCU (screenshot 2 & 3) and use the entire weekend to maximize the impact. 

    Cyber Monday promos:

    • 50% off credit-monitoring products from Quizzle, the spinout from Quicken Loans (see email below)
    • Visions Federal Credit Union offered a loan special from Black Friday through Cyber Monday (screenshot below). The CU reported $10 million in loans on Friday alone.
    • Navy Federal Credit Union offered bonus rewards-points for purchases made online

    -------------------------------------------

    Cyber Monday email from Quizzle (link; Monday, 7 AM Pacific, 28 Nov 2011)

    Cyber Monday email from Quizzle

    Visions Federal Credit Union Thanksgiving weekend loan special (28 Nov 2011)

    Visions Federal Credit Union Thanksgiving weekend loan special

    Visions landing page (link)

    Visions FCU landing page Black Friday landing page

    Navy Federal Cyber Monday cashRewards promo (link)
    Note: Given the date shown, this page is likely a carryover from 2010. But it's still available via "Cyber Monday" searches on Navy Federal's website.

    Navy Federal Credit Union Cyber Monday landing page

    Notes:
    1. ING Direct was at it again with seven offers over the Thanksgiving weekend (Deposit Accounts has the full rundown). However, the specials did not extend into Cyber Monday.   
    2. 1st Financial Federal Credit Union ($210 million, Wentzville, MO) and Heritage Community Credit Union ($200 million, Sacramento, CA) offered loan deals on Black Friday according to CreditUnionsOnline.com

    Comments

    Out of the Inbox: First Tech CU Pitches Auto Loans

    By Jim Bruene on September 1, 2011 4:29 PM | Comments

    image As the country heads back to work and school, it's a great time to remind customers that you have killer rates for auto loans. So, First Tech Federal Credit Union's marketing email to members yesterday promoting a 2.99% rate was well timed. And I love how the message is direct and to the point.

    While the email could use a little more visual punch (graphics/typography), First Tech nailed the timing, product, price, and headline. So it is 90% there even before reading the copy. However, that's where the effort falls a bit short. Here's why (numbers correspond to screenshot below):

    Minor issues in copywriting:
    1. The second sentence in the opening paragraph is awkward because the phrase "keep that new auto loan payment in check..." is hard to understand. If you pair "check" with "payment," it sounds like you are referring to a checking account, not a low-payment amount.

    2. Be careful with how you talk about rate discounts. They way First Tech wrote it, ".25% rate discount" sounds like the loan rate is going to be chopped by a full 25% instead of 25 basis points. It would be better to put a zero in front of rate, e.g., "0.25%" and perhaps call it a "rate reduction" instead of discount to be perfectly clear. 

    Weak "offer acceptance:"
    3. It's too hard to find the loan application in order to take advantage of the great rate. Members are directed back to the First Tech homepage where they must search for an loan app. The CU should either take members directly to a specific landing page for this offer, or at least drop them on the auto loan page. It does help that one of the four rotating homepage banners is for auto loans, but it's third in the rotation and only stays in view for 15 seconds or so.

    In addition, not everyone wants to research and/or apply online. A phone number, at least for more information, would be a welcome addition to the message.

    Finally, there is no sense of urgency, e.g., "the rate is guaranteed through the weekend" or even "act now before rates increase."

    Overall grade: B

    -----------------------

    First Tech Credit Union email to members promoting 2.99% auto loans (31 Aug. 2011; 9:28 AM Pacific)

    First Tech Credit Union email to members promoting 2.99% auto loans (31 Aug 2011; 9:28 AM Pacific)

    Comments

    U.S. Peer-to-Peer Lending Hits Record High for Seventh Month in a Row

    By Jim Bruene on July 20, 2011 1:07 PM | Comments

    This guest post was written by Peter Renton, (@SocialLoans), Editor & Publisher of peer-to-peer lending blog, Social Lending Network.

    -------------------------------------

    With the launch of Prosper in Feb. 2006, peer to peer (P2P) lending arrived in the United States with great fanfare. Borrowers no longer needed banks. Individual investors could be the banker and earn great returns.

    But, there have been challenges along the way. In 2008, the SEC decided P2P lending should be regulated as a securities business and both Prosper and Lending Club, which launched in mid-2007, were shuttered for half a year as they retooled. Both companies also initially struggled with higher-than-expected default rates.

    It is only now that P2P lending appears to be living up to that initial promise. Last month was the best ever as lending volumes broke the record for the seventh month in a row. The combined volume of Prosper and Lending Club amounted to $25.6 million in June compared with $12.2 million a year ago, a 110% gain. As you can see in the chart below, the growth curve has been getting steeper.

    image 
    Source: Companies, July 2011
    ___________________________________________________________________________________________________

    What is driving the growth?
    _______________________________________________________________________

    1. Credit card interest rates remain high
    The most common type of loan by far, on both Lending Club and Prosper, is debt consolidation. People are trying to dig themselves out of credit card debt where rates can climb north of 30% if a payment is missed. In comparison, someone with good credit can get a 36-month P2P loan at 12% to pay off their credit cards in three years.

    2. Home equity loans are very difficult to get
    Before the real estate bust, banks pushed home-equity loans aggressively. No more. It now takes great credit and substantial equity to qualify. Last month Lending Club reported that 14% of its loans were used to fund home-improvement projects. Prosper said that number was 12%.

    3. Investors can earn double-digit returns
    It has been two-and-a-half years now since the Federal Reserve dropped its target-funds rate to zero. Fixed-income investors have been stuck with returns in the low single digits. Investors are looking for yield and some are considering alternative asset classes like P2P lending where returns are averaging around 10%, though it's yet to be seen if that return holds as the loans season.

    Prosper CEO Chris Larsen attributes the high investor returns to the startup's five years of experience. He said, "Since re-launching our platform in July 2009, we've delivered returns of 10.4% and default rates of 5.3% and lenders are responding favorably." Their recent performance backs up these statements.

    4. Institutional investors are taking notice
    Lending Club says that currently about one-third of investor money comes from institutional investors. In May, Prosper took on a new institutional lender who has invested close to $2 million in just two months and has pledged a whopping $150 million in the future. Prosper expects the balance of individual to institutional investor to resemble more of a 50/50 split as the category continues to grow. Clearly some of the big-money players are starting to allocate assets to P2P loans.

    5. The IRA option
    For a couple years now, Lending Club has offered an IRA option they say has proven to be popular. "Investors planning retirement are less concerned with near-term liquidity and are more interested in consistent returns and the ability of an investment to generate cash flow," explained Scott Sanborn, CMO at Lending Club, "and we find existing investors who have been pleased with their returns who are opening larger IRA accounts to let their investment grow tax deferred." Prosper does not officially offer an IRA although it is possible to set up a self-directed IRA with Prosper.

    Comments

    Why I Got My Car Loan Through the Dealer Instead of My Online Bank

    By Jim Bruene on June 29, 2011 9:56 PM | Comments (1)

    (Rant alert: If you are tired of analyst/blogger whining over perceived personal service affronts, it would be best to hit delete now.)

    image I don't think there is an actual name for this, but I am car-dealer phobic. Seriously. On more than one occasion, I've driven all the way to the dealer. Parked my car. And then driven away as soon as I saw the sales guy (they have all been guys) ambling over. It's weird.

    But I found eBay Motors about 10 years ago and have been overall very happy with the three vehicles I've bought there. So that would be the end of the story, if I wasn't married.

    My otherwise wonderful wife greatly prefers vehicles with that new-car smell, not the ones that arrive needing an $1800 catalytic converter to pass the emissions test (my most recent eBay "deal"). And I can't really complain, because she's perfectly willing to drive the thing for a decade or more.  

    Good online application UX
    So she ordered a new car and put me in charge of paying for it (does that sound familiar to anyone?). Being an online-only shopper, I went to my favorite car loan specialist (note 1) and completed their online app. The app itself was flawless and took only a few minutes.

    While I was disappointed that I wasn't approved in real-time, I received an email a few minutes later congratulating me on my loan approval. But there was a catch. In order to "to protect my privacy, (the bank) needed to verify some information." So would I please call. That was 2 weeks ago.

    Terrible income verification UX
    So I called the next day. What I found didn't totally surprise me. Despite being a customer of this financial institution (with an open credit line higher than the price of the car), and the fact that I've borrowed and paid back two car loans with them previously, and that I requested a 3-year loan which minimizes their collateral risk, and that I have good credit, the bank wanted to verify my income. And because I'm a business owner (not salaried), they needed 3 months of bank statements.

    So I dug out the old statements, scanned them (note 2), and emailed them to the bank. There was no confirmation they were received, nor did the online loan-status indicator change (it simply said "approved"). I did that 12 days ago.

    Then I waited for a week and heard nothing. So I called back and was told they hadn't looked at the docs yet, but that they would expedite them. That was six days ago.

    The next day, I received an email from the bank asking me to call again. You know that's not good news. Here's how that call went:

    • Bank: We cannot verify your income because it shows as "Internet transfers" on your bank statement.
      Me: But my business banking account is at the same bank as my personal one, so when I get paid, it's called a "transfer" because it is one.  
      Bank: Sorry, we only consider it income if the bank statement says "deposit."  
    • Me: OK, I can understand that, how about I send you my 2010 tax return?
      Bank: Sorry, we don't accept tax returns for income verification.
    • Me: OK, how about if I send you the last 3 months of my business bank statements, then you can see the transfers leaving that account and landing in my personal account. 
      Bank: Sorry, we can't accept biz-bank statements because we don't make commercial loans.
    • Me: Can we move this application to an exception processing area for manager review?
      Bank: Sorry, we don't do that.
    • Me: Is there any way you can think of that I could verify my income? 
      Bank: Do you have a spouse with W-2 income?
      Me: No
      Bank: Then unfortunately, I don't see any way that we can verify your income. Sorry.
    • Me: Then what I hear you saying is that there is no way for me to get the loan you approved me for?
      Bank: Sorry, but that's the case.

    With that we ended the conversation. Rather abruptly if I recall. (I will say, she was actually very nice throughout the whole call, so partial credit for that.)

    After I'd cooled down a bit, I decided to call back and try my luck with another rep. Sure enough, after I explained the situation and offered to send the corresponding biz-bank statements to verify the transfers, he said, "That makes sense, let me check with my manager." Within a minute or two he came back on and said that my solution should work and to please send the business banking statements. Which I did, right away. And again no confirmation that they were received. That was 4 days ago.

    After hearing nothing for two more days (this is supposedly being "expedited"), I called back and was told it was under review and there was nothing they could do to speed it up. That was 2 days ago. I haven't heard anything since.

    The car dealer to the rescue
    Because I had to pay for the car in full this week or forfeit the deposit, I gave up on my online bank and called the dealer. At their instruction, I completed their short online form, was approved by their indirect lender (thank you U.S. Bank!), and went in and signed the papers. Start-to-finish in just a few hours. There was no income verification. And I even got a better rate.

    Lessons for Netbankers: Experiences like this is what gives online lending a bad name. This is the third time in a row I've had a really poor experience with an online loan app. I understand that my self-employment, even after 16 years, makes underwriting more difficult in these cautious times. But you need to have a process in place where denied applicants can request a quick review of their application, detailing the mitigating factors.

    Simply leaving prospective customers hanging is not good business.   

    ----------------------------------------

    Notes:
    1. My policy is to not to disclose the name of the financial institution if it's about an issue or problem with my personal situation. But I will email you the name as long as you identify yourself and agree not to publicly post it (send to jim@netbanker.com).  
    2. Unfortunately, I couldn't simply download estatements since my bank does not offer them, unless you give up your paper statement.
    3. For more on online account opening, see Online Banking Report: Improving Online Account Opening ROI (published June 2009). 

    Comments (1)

    Prosper is Back in the Game, Lands First Private Equity Lender

    By Jim Bruene on June 15, 2011 7:01 PM | Comments (1)

    imageA few weeks ago, I caught up with Chris Larsen, CEO & founder of Prosper. I've been a huge fan of his work for more than a decade. His ventures,
    E-Loan and Prosper, have been pioneers in the lending space, both earning OBR Best of Web awards and Prosper also taking Best of Show in our first Finovate in Oct. 2007 (note 1).

    But it's been a rocky few years for Prosper (see Netbanker archives), as it's been for most consumer lenders. The company even lost its lead in the U.S. P2P loan space to Lending Club, which is currently originating about three times as many loans.

    But Prosper survived and appears to be back on a path to live up to its name. Some recent milestones:

    • Its first private equity lender (updated 16 June, 2011, per comment below) is coming on board, pledging $150 million to fund loans on the Prosper platform. This is an important development and fulfills a goal that the company sought since its 2006 launch. It will also help Prosper keep up with Lending Club which has had major institutional investors for a while. Prosper hopes to keep a healthy mix of retail and institutional investment ("50/50 would be fine").
    • $17.2 million in new venture funding from Draper Fisher Jurvetson and Crosslink Capital (announced 7 June, link)
    • Achieving double-digit returns for investors, a far cry from the negative returns some lenders experienced in the "trial & error" era before (note 4
    • Achieving large year-over-year loan growth, although the company is still running less than half the pace of the pre-SEC days (note 3)

    Prosper loan growth

    image

    Source: Eric's Credit Community, 15 June 2011

    Prosper's homepage is a model of Web 2.0 simplicity
    Note: New lenders are offered an iPad for investing $20,000 or more (15 June 2011)

    Prosper's homepage is a model of Web 2.0 simplicity

    Both Prosper and Lending Club are averaging about 200,000 monthly unique visitors

    image

    Source: Compete, 19 May 2011

    --------------------------------------------

    Notes:
    1. E-Loan was named OBR Best of the Web in July 1997 for launching the first online mortgage brokerage.    
    2. Prosper was named OBR Best of the Web in March 2006 for launching the first P2P loan service in the United States, and the first anywhere to use competitive bidding to set rates, a model they recently abandoned.  
    3. Before the SEC forced the company to restructure its business as a securities issuer in Oct 2008.
    4. The average total return for the 2006 to 2008 loans (most of which are now off the books) was a negative 5.4%

    Comments (1)

    Out of the Inbox: ING Direct Raises Price on Overdraft Credit Line by 55%, Still Undercuts Competition by 99%

    By Jim Bruene on March 22, 2011 10:49 AM | Comments (1)

    image This has to be the best notification of a price increase I've ever seen (see first screenshot).

    ING Direct  (USA) famously does not charge OD/NSF fees on its checking account, Electric Orange. But that's a bit of a moot point since the bank doesn't offer paper checks, making it difficult to inadvertently go negative.

    However, the bank does allow overdrawing by few hundred dollars if you so choose. And it charges interest on those "overdrafts" at a variable rate equal to 4% above prime, currently 7.25%. The bank reinforces the no-fee pricing in its standard low-balance alert (see second screenshot below).

    But that low APR is heading upwards. Last night I received an email notification that effective May 15, the variable rate will be increasing to 8% above prime, or 11.25% today, a 55% increase. That's still relatively reasonable for unsecured credit.

    But the bank's email doesn't focus on APR. After clearly disclosing the price increase, it lays out a comparison of what a $100 overdraft would cost the average U.S. consumer for one week, $31, vs. the $0.31 you'd owe ING Direct after 7 days. There are no other fees, transaction or annual, for the ING credit line (complete terms here).

    Well played.

    ING Direct email disclosing OD credit line APR increase (21 March 2011)

     

    ING Direct email disclosing OD credit line APR increase (21 March 2011)

    Overdraft notice (22 March 2011)
    The bank reinforces its no-fee policy in its email OD alert.

    ING Direct (USA) Overdraft notice (22 March 2011)

    Comments (1)

    Out of the Inbox: Lending Club’s “Idle Cash Alert”

    By Jim Bruene on October 12, 2010 6:24 PM | Comments

    image Lending Club, which recently surpassed $12 million in monthly P2P loan volume (see below), does a great job concisely communicating important account info. The startup earned an "A" in our recent report on transaction alerts (note 1).

    Below is another example of its exemplary email alerts. In just 30 words, the company reinforces my impressive rate of return and my account balance. Then it seamlessly goes for the sale, encouraging me to put my cash balance to work by making more loans.

    The only improvement I'd suggest is making the call to action, "Browse available Notes," more prominent. First, it's not clear that it's a link. Second, what does that even mean? Ideally, it would be Lend Now, although I understand that terminology is not "SEC friendly," so Invest Now, should work.  

    Bottom line: It's a win-win to provide encouragement every now and then about how customers might put their idle balances to work. Just don't overdue it.

    Lending Club "Idle Cash Alert" (27 Sep. 2010)

    image

    Lending Club loan volume: Aug. 2009 through Sep. 2010

    Lending Club loan volume: Aug. 2009 through Sept. 2010

    Note:
    1. See previous post on OBR 181/182 published July 2010

    Comments

    Let’s Do a Better Job Handling Rejected Online Loan Applicants

    By Jim Bruene on September 21, 2010 8:53 PM | Comments

    image If you've ever worked at a financial institution, you've no doubt heard the often-true horror stories from the loan department. You know the ones, where senator so-and-so's spouse or the CEO's brother were turned down for a car loan (see note 1).

    The problem with automated loan systems is that there is no human doing a reality check on denied applications. Was it really a deadbeat applying or did someone just make a mistake on the application form? You can bet if a senator's spouse had applied for the loan in person the loan officer would have picked up some clues that maybe this app deserved some extra scrutiny.

    But the flip side to human involvement is discrimination, whether intentional or not. A huge benefit to automated loan decisioning is the virtual elimination of certain biases from the process. Computer algorithms only evaluate the factors they've been told to look at. Nothing more. Nothing less. 

    And because computer analysis has put more science into the underwriting process (notwithstanding the recent housing bubble), most people agree that it's generally been good for the bank and (most) consumers. But even the best system will generate a certain number of false negatives leading to the occasional embarrassing decline.

    So it's worth considering installing a second-look system in your online process, providing wrongly denied applicants another chance at proving themselves worthy, before they end up embarrassing your CEO at their next family gathering.  

    And why might I be thinking these thoughts? Yesterday, I went online to accept the direct mail offer from a major credit card issuer who's sent me more than 100 solicitations over the past decade (note 2). And I was flat-out rejected. Either I fell victim to a false negative or the issuer's underwriting is not in sync with their marketing.

    The application process = great
    The online acceptance process itself was flawless. I typed in my registration code, answered a few questions, and hit enter. It had taken about 3 minutes up to that point. Then wham! Twenty-four seconds later, the application was denied (note 3).

    The rejection process = sucks 
    And even though I could live without the card (note 4), it's frustrating and disappointing to be turned down flat with no recourse. Especially after being aggressively solicited for years.

    And the company pretty much disowns you after the bad news. The website returns a two-sentence rejection thanking you for your interest, saying that they couldn't approve the request, and that they'll followup in writing in a couple weeks explaining their reasoning. And BTW, please don't apply again for at least 45 days. No apology. No email. No phone (or even email) to contact for more info. No referral to the credit bureaus or other resources. Just a simple, cold brush-off.

    So I went back to the direct mail letter and called the number listed there. The bank rep said there was no way to look at the app I'd entered minutes earlier to see why it was denied. All he could do was take another new app, but he warned that the system wouldn't like seeing multiple apps and would likely reject it again.

    Recommendations: You cannot avoid making credit denials, lots of them. And you can't avoid the occasional false negative. But you can, and should, create a way for online applicants to ask for a second look, and perhaps correct any errors that they might have made. And if you can't do that, at least be compassionate with the immediate messaging and try to offer some helpful resources.  

    My three-step, face-saving, loan-denial process:

    1. Thank the applicant and apologize for not meeting their needs. Say this both on the website and in a followup email.

    2. Explain that although you're not perfect, there appears to be circumstances in the application that preclude you from offering credit at this time. Refer them to Credit Karma, Quizzle, or other credit resources to view their credit score and learn more.

    3. Provide a second-chance option either through email or telephone for applicants with strong credit to ask for a human review. 

    Optional: For customers you must turn down now, but who you think might be good future prospects for loans and/or other products, or who are already profitable existing customers, consider sending a consolation prize: $5 statement credit, a Starbucks card, two-for-one movie certificate, etc. 

    Second-look apps would need a higher level of scrutiny to ensure against those trying to game the system. But there will likely be some gems uncovered in the process. 

    --------------------------------------

    Notes:
    1. My favorite personal story of botched celebrity banking happened at First Interstate Bank of Washington where I worked in the late 1980s. Bill Gates, whose mom was on our board, supposedly used what was then our "state-of-the-art" telephone bill-payment service. Apparently, we didn't send off his mortgage payment and the late fee we ate was more revenue than the entire bill-pay program generated in a month. It happened a few months before I started working there, so I can't vouch 100% for its accuracy. But I can tell you it was a popular story within the bank with a "failed tech" angle and a juicy tidbit about the outlandish size of the mortgage on the Gates property.    
    2. This is a rare situation where I'm not naming the company in a public blogpost because a credit denial is such an individual thing. It doesn't seem fair to single them out for one incident which is most likely not indicative of the normal experience there. However, I will disclose the name on an individual basis if you email me and promise not to post it publicly.  
    3. I'm not sure what went wrong with the application. I have several decades of excellent credit, zero inquiries in the past 6 months, reasonable debt-to-income, and a decent level of household income. And I checked all three bureaus recently and everything was fine. However, the bureaus do have inconsistent, and partially incorrect, info about my employment history. But the application did not ask for employer name, so I don't see how that could have sunk it.  
    4. I actually planned to use the card frequently; it had better terms than the one I was hoping to replace.

    Comments
    Categories: Loans & Credit, Service

    Making Debit Overdrafts into a Real Service Again

    By Jim Bruene on July 7, 2010 4:36 PM | Comments (2)

    imageIn 1988, as a new product manager at a long-since-merged-away bank, one of the first things I did was send a memo to my superiors pointing out that our overdraft fee of $8 was significantly less than our peers. And that we might want to consider raising ours to the industry standard $10. That little change added a million dollars to our bottom line and wasn't a half-bad start to my career there. 

    So I've always understood how difficult it is to resist the temptation to raise OD fees. That said, there was no excuse for the debit-card excesses that led to the opt-in regulations taking effect this summer. No one should have to pay $39 extra for their morning coffee/donut fix.  

    So as much as I detest price controls, I'll have to admit I've been looking forward to the industry efforts to turn debit overdrafts into a value-added service instead of the huge negative penalty they had become.

    Ultimately, I see small overdrafts being priced more like mini-loans with a combination of withdrawal fees in the same range as foreign-ATM fees ($2 to $4 each) plus an interest rate or nominal daily fee based on the outstanding balance. Then, if I'm at the store and need $40 more for dinner groceries, I can decide to take the loan, pay the extra $5, and go about with my evening plans.

    It's a win-win. I'm happy the bank/credit union gave extended me a little credit in a tight situation, and the bank makes some much-needed fee income, albeit in $3 increments, instead of $39. While the lower prices won't replace lost fee income dollar for dollar, and underwriting/credit issues must be addressed, customers will be happier and more loyal, employees will feel better about the value delivered, and in the long-term, things can get back to a more normal price/value relationship.

    I'll be chronicling some of the most interesting implementations of value-added OD protection during the rest of the summer. I looked at Truliant Federal Credit Union a few weeks ago (here). Next up, Wells Fargo.

    Comments (2)

    Truliant FCU Raises Fear of Being Declined in New Website Pitch for Opt-in Debit Card Overdraft Protection

    By Jim Bruene on June 10, 2010 3:50 PM | Comments (1)

    image Three weeks ago I noticed that North Carolina-based Truliant Federal Credit Union had posted a highly visible opt-in overdraft pitch on its login page (see screenshot #5, below). I checked back today and found that the CU is still running a login page ad, albeit smaller (ss #2), and has also taken the message to its homepage (ss #1).

    The new ads are more fear-based compared to the previous friend-of-the-customer approach (see note 1). In addition, the 180,000-member CU has moved to an online opt-in form (ss #4). Previously, customers could only ask for someone to contact them (ss #6).

    Truliant has considerably simplified the landing-page message. In May, it offered a credit line option in addition to the simple $29-per-item system (ss #6). Apparently, that wasn't working as well as hoped. Now, members clicking on either the homepage or login-page promo receive a short, semi-urgent message (ss #3) that links to the online opt-in form.

    Analysis: While I think the CU does an adequate job explaining the new opt-in options (see note 2 for suggested improvements), I'm disappointed it moved away from giving the credit line option equal billing. With an APR of 6.5% to 11.5% and no transaction/advance fees, it's a much more cost-effective option (note 3).   

    1. Truliant FCU homepage visitors receive a large homepage pitch to opt-in for overdraft protection (10 June 2010)
    Note: It must be a brand new banner since the underlying hyperlink, after the ads have cycled once, has a typo causing it to lead to an error page (9:25 AM PDT)

    image

    2. Overdraft protection message on login page (link, 10 June 2010)

    image

    3. Landing page (link, 10 June 2010)       4. Opt-in form (link,10 June 2010)
    Click to enlarge                                           Click to enlarge

    image    image

    5. Previous login page had two ads for OD protection (20 May 2010)

    image

    6. Previous landing page included a line-of-credit option (link, 20 May 2010)
    Note: In May there was no online opt-in form; interested members could only select a "contact me" button. The landing page now links to the form shown in #4 above.

    image

    Notes:
    I hate singling out Truliant for this post. It has one of the best blogs in all of banking that does a great job educating and connecting with members. And because the CU has done a decent job with the overdraft opt-in process, I'd give it a B or B- grade. But my job is to look for potential improvements, so here goes.

    1. Is making members afraid of using their Truliant debit card really a good way to endear them to the brand? Sure, the ads are likely to produce clickthroughs and they definitely don't cross over into the misleading category, but is there a little "crying wolf" here? Something to think about.

    2. Other suggestions for improvement:

    • The three choices on the online form are not as clear as they could be. The most popular choice, number 2, has both a YES and NO in it. That's the kind of wording that gives your members a headache. It would be far simpler if you just asked customers to tell you which types of transactions they want covered:
         A. Paper checks and automatic drafts (yes/no)
         B. Debit card transactions that don't require a PIN (yes/no)
    • The landing page confuses the matter by using three different terms (debit without PIN, debit, and signature debit) without providing a detailed definition. At minimum, a link to a clear definition of the term should be included.
    • The landing page says you have to "opt in again by August 15." That sounds like I need to do something now and something again later this summer.
    • The "nightmare" scenario presented on the landing page, being denied at the grocery store POS when you have a hungry family to feed, is a good example of the downside of not electing to have debit-card OD protection. And even though the $29 charge is mentioned in the previous paragraph, members skimming the landing page may still not understand it will cost them $29 to avoid this embarrassment/hassle. I'd go overboard here and place an asterisk by this line and disclose the $29 fee again in fine print at the bottom.  

    3. If the problem is that it's too hard to qualify for the credit line, the CU should consider a higher-APR and/or more-fee version for riskier members.

    Comments (1)

    Syphr Launches Credit and Loan Info Site, MoreThanACreditReport.com

    By Andrew Dolbeck on January 21, 2010 7:55 AM | Comments (3)

    clip_image002

    Syphr LLC is a technology and marketing CUSO (Credit Union Service Organization) that develops online tools to connect community banks and credit unions with prospective members. The company is owned by Eastern New York FCU and several other credit unions. Syphr's primary product is the RateMatch system, which allows banks and credit unions to position loan offers in front of consumers as they check their credit reports online (FinovateStartup 2009 demo here.)

    Syphr's RateMatch system was designed to help credit unions find new members and loan customers. Syphr generates revenue by charging financial institutions when prospective clients click on a link to contact the institution. According to Syphr, the RateMatch engine has processed more than 5,000 reports, with an average loan payment savings of $239 per month.

    Syphr's newest innovation is MoreThanACreditReport.com, a credit reporting website with targeted loan information. It's designed to help consumers save by comparing their current loans to those offered by Syphr's affiliated banks and credit unions. Instead of offering just the credit report, the company provides money-saving loan deals. The site launched January 14, 2010 (press release here).

    Although the site emphasizes a free credit report, MoreThanACreditReport charges users $14.95/month after a seven-day free trial (see screenshot below; highlighting has been added).

    clip_image004

    As part of that membership fee, the site's customers get access to other Syphr products including monthly credit monitoring, a credit report every six months, and Syphr's Payment Patrol system, which allows customers to receive notifications of better loan options as interest rates change.

    How MoreThanACreditReport.com Works:

    1. Consumers register at the MoreThanACreditReport.com site to get their credit report.

    2. The site uses the consumer's Zip code to display average loan rates for the local area.

    3. Next, using the consumer's credit card information, the site pulls an Experion credit report using a soft pull that does not show as an inquiry on the borrower's credit file.

    4. Syphr's RateMatch technology analyzes the user's existing loans and searches for better deals available from affiliated financial institutions in their local area. RateMatch is powered by DataTrac, one of the largest interest rate databases in the United States.

    5. The site shows the comparison to the consumer, highlighting where they can save money by refinancing or switching loans. In the example below, Eastern New York FCU is identified as a place that could save the user $60 per month.

    clip_image006

    If there are no participating financial institutions in the consumer's local area, they are given a RateTrac report, which compares the consumer's loans against the average payment plans offered by loan providers in the area. If the report shows that the consumer is paying more than the local average, the consumer can use the data to help negotiate lower rates.

    clip_image008

    6. If there are participating lenders available, the website allows consumers to contact the lenders directly simply by clicking on the "exchange it" button. Lenders automatically receive the customer's contact details and credit info.

    7. Clicking on an offer on the MoreThanACreditReport site does not constitute a firm offer of credit. The bank or credit union follows up to arrange the actual loan. Because the loan information presented by the website is based on the consumer's credit report, it is likely to be representative of what the participating bank will offer.

    My take: Saving money on loans is one of the key reasons people check their credit reports. Syphr says that more than 175,000 people check their credit reports online each month. As a lead-generation system for financial institutions, MoreThanACreditReport.com has the advantage of putting loan offers in front of consumers at the precise time they are thinking about a new loan. 

    The MoreThanACreditReport.com site

    clip_image010

     

    RateMatch Offers Loan Savings

    RateMatchReport

    Comments (3)

    Mercedes-Benz Financial Launches Car Finance iPhone App

    By Jim Bruene on October 6, 2009 11:33 AM | Comments (2)

    imageAs an analyst who covers new developments in online and mobile finance, I will forever be grateful to Apple for opening up the mobile-phone platform, thereby unleashing a rush of innovations sure to rival the Internet circa 1995 to 2001 (note 1).

    The latest financial app is from none other than Mercedes-Benz. The luxury-car maker has several iPhone apps available to its fans, but the latest, which appeared in the App Store last Tuesday, is specifically designed for its finance customers (iTunes link to app). It's the first captive finance company with its own app, at least in the U.S.

    Other than the striking homepage image, the app is pretty pedestrian so far. It allows registered users (note 2) to make a car payment, calculate the pay-off amount, and find dealers and customer service numbers. In other words, it's a lot like the company's website ten years ago (note 3).

    But that's OK, for now. Financial brands should take advantage of the free publicity of the iPhone App Store and  post something, even if it's just a window to their Web app (worked for Bank of America).

    Along those lines, SunTrust (iTunes link) is the latest megabank to join the store (last week), leaving US Bank, Capital One, BB&T, and HSBC as the remaining top-10 U.S. retail banks without their own iPhone app. Who will be the last one in?

    Mercedes-Benz Financial's homepage includes iPhone link (6 Oct 2009)

    image

    iPhone landing page (link)

     image

    Notes:
    1. For more info on the market, see our Online Banking Report: Mobile Banking via iPhone (March 2009)
    2. Users must set up a profile online at Mercedes-BenzFinancial.com  before accessing their accounts via iPhone.
    3. But I'm kind of surprised MB didn't include a payments calculator, standard fare at most car sites.

    Comments (2)

    Lending Club Offers New Lenders $50 to Get Started on its Peer-to-Peer Platform

    By Jim Bruene on August 4, 2009 12:12 PM | Comments

    image This morning Lending Club emailed its existing lenders encouraging them to refer friends to become lenders on the peer-to-peer lending platform. The peer-to-peer lending pioneer says that is has added 11,000 new lenders this year, an impressive 1,600 monthly pace. Lending Club now has 20,000 registered lenders (note 1).

    The pitch: Instead of paying referral fees, the $50 incentive is earmarked entirely for the new lender/investor. Basically they get a free trial of the service. The offer is available for only two weeks, otherwise Lending Club risks being flooded with new accounts that just want to get a hold of the $50.

    Analysis: Typically, companies pay a fee to user who made a successful referral. Sometimes with an equal incentive to the new customer. While that may result in a slew of new accounts, converting them to long-term profitable participants can be difficult.

    I believe the more-sophisticated investor/lender attracted to Lending Club will be MORE likely to make good referrals if they don't personally benefit from the referral (note 2). No matter how much users like Lending Club, if they are being paid to spam friends, it just doesn't feel right. While Lending Club may get fewer referrals this way, the ones they do get should convert better in the long run.

    Lending Club is making it incredibly easy to spread the word. Existing customers can use an automated wizard to send messages to friends (see second screenshot) or prospects may simply enter the referring customer's member name to qualify for the $50. And there appears to be no fine print on the offer other than the Aug. 15 expiration date.

    Lending Club email (sent 4 Aug 2009 at 6 AM Pacific)
    Subject: Give your friends $50 to try Lending Club

    image

    Landing page
    Includes tools for automating the process of reaching out to friends

    image

    Notes:
    1. So far this year, $21 million in loans have been originated at Lending Club, approximately $1,000 per lender.
    2. Lending Club does pay $25 to the referral source for new APPROVED borrowers. That's an affiliate marketing strategy and makes economic sense because it's only paid for approved loans. 

    Comments

    U.S. Bank Integrates Self-Service Collection Module into Online Banking

    By Jim Bruene on July 31, 2009 6:50 PM | Comments (2)

    image One benefit of running a financial services publication is that my own financial mistakes can be used for editorial material. My latest faux pas resulted in learning first-hand about U.S. Bank's self-service collection module integrated into online banking.  

    The details: Apparently, last month I hit negative $300 in my business checking account during some intra-day moment. The daily closing balances never fell below a healthy balance, so I didn't realize an automatic "overdraft" transfer from our credit line had occurred (note 1). 

    Since I assumed it was unused, I never looked at the credit line statement, and therefore neglected to pay it off or make the minimum payment. Then yesterday, when I went online to pay a bill, I noticed a new line item on my account ledger, Payment Assistance Options (see first screenshot below). I know that if my bank is offering to assist me with my payment, I'm in deep trouble.

    I followed the link to where a well laid-out module took me through my options to pay back the delinquent loan (see screenshots 2 and 3). I paid off the $300 plus an extra $39 for the late fee, $3 for the overdraft fee, and a $2.79 finance charge. That's $44.79 in penalty fees, pretty expensive for a 42-day $300 loan (note 1), but low cost for a blog entry.

    Bottom line: The self-service collection module is a good addition to online banking and should save the bank costs in routine collection efforts where the user simply forgot to make a payment. Even though I hated the $39 late fee, I'm glad the delinquency didn't progress further until it landed on my credit report.

    1. US Bank main account management page showing collection function (29 July 2009)

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    2. Landing page outlining collection options

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    3. Promise to pay page
    Note: Can pay by Web, mail, express mail,

    image 

    Note:
    1. Yes, closer monitoring of our checking account transaction register would have identified the transfer. But like many business owners, I prefer to spend time in other areas of the business.

    Comments (2)
    Categories: Loans & Credit, US Bank

    Prosper Back in Peer-to-Peer Lending Game with Full Approval of SEC

    By Jim Bruene on July 13, 2009 6:48 PM | Comments (1)

    image At our FinovateStartup conference two months ago, Prosper won a Best of Show award for the re-launch of its peer-to-peer lending platform. But apparently, the SEC didn't share our audience's enthusiasm over Prosper's plan to operate under State of California regulatory authority while its SEC filings were undergoing final scrutiny. So Prosper went offline again, waiting until today at 5:30 PM Pacific to reopen (note 1).

    The company can now set aside the last nine months of regulatory servitude and pursue its vision: allowing loans to be originated online in an auction process. Sure, thousands of pages of Prosper documentation are now on file at the SEC, with thousands more on the way, and lenders (aka investors) must now meet various state-mandated "investor suitability" requirements (note 2). But fundamentally, it's the same peer-to-peer lending service the company introduced in 2006, albeit with hundreds of incremental improvements (note 3).

    The latest version launched today includes a number of tweaks that include a higher minimum credit score (640), new risk ratings, and lower minimum bid amount ($25), but the only major changes are:

    1. A secondary market is now available for lenders to sell their previously originated loans
    2. A hard rate floor that establishes a minimum yield for loans. It varies by credit score and is determined by adding the current 3-year national CD rate to the expected loss rate of the loan. For example, a C-rated loan with a 6% loss rate now has a floor of approximately 8.3% (6% + 2.3%). The vast majority of loans would have been originated at rates above the floor anyway, so the impact should be small.
    3. Because each individual state must now approve lending/investing at Prosper, only 14 are currently on board: California, Colorado, Delaware, Georgia, Illinois, Minnesota, Montana, Nevada, New York, South Carolina, South Dakota, Utah, Wisconsin, and Wyoming. More states will be added in the weeks and months ahead. Borrowing is permitted in all states except Iowa, Kansas, Maine and North Dakota.

    On hold is the planned option to allow institutional lenders to post already-originated loans directly into the marketplace (Open Market), see previous post.

    To support the grand re-opening, CEO Chris Larsen penned a blog post entitled: Prosper is Back! (We mean it this time) which features a humorous YouTube clip of him asking his dad to post a loan listing on Prosper (embedded below). It's good to see they've maintained a sense of humor. 


    Prosper homepage minutes after its 5:30 PM Pacific relaunch (13 July 2009)

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    Notes:
    1. The SEC approved the Prosper filings Friday afternoon, 10 July 2009.
    2. Investor suitability requirements may involve one or more of the following: minimum net worth, minimum annual income, maximum investment as a percent of net worth.
    3. For more on the P2P loan marketplace, see our Online Banking Report on Peer-to-Peer Lending (published Dec. 2007). 

    Comments (1)

    Lending Club Teams with EntrustCAMA to Offer Self-Directed IRA Option for P2P Lending

    By Jim Bruene on March 25, 2009 6:56 PM | Comments

    image Ah, it's nice to be among the funded (see note 1). Not only can Lending Club afford to push forward with the usual marketing programs such as Google AdSense and affiliate deals, it can support unique efforts such as UnCrunch America and support for self-directed IRAs.

    The IRA option, launched today (press release), primarily appeals to serious investors, given the $250 annual maintenance fee (waived the first year) from sponsor EntrustCAMA. The EntrustCAMA IRA allows tax-deferred investments in a variety of assets including single-family homes, private equity, and so forth.

    Interested parties can complete the IRA form directly on the Lending Club site. However, the form must be printed and mailed to EntrustCAMA (see landing page below)

    Bottom line: While self-directed IRA investors have historically chased higher-yielding investments than the single-digit returns expected from P2P installment loans, in today's environment there should be more interest in the relatively low-risk consumer loan portfolios available through Lending Club. 

    Lending Club self-directed IRA landing page (link, 25 March 2009)

    image

    Notes:
    1. Last week, Lending Club announced a $12-million series-B round of funding.
    2. Lending Club will be appearing at our April 28 FinovateStartup conference.

    Comments

    Virgin Money Joins UnCrunch America

    By Jim Bruene on February 25, 2009 12:11 PM | Comments

    image UnCrunch America, the peer-to-peer lending educational/marketing campaign spearheaded by Lending Club (note 1) got a big boost with the addition of Virgin Money USA.

    Not only does Virgin brings its considerable brand recognition, it legitimizes the effort as a true cooperative project, and adds a huge new category to the site, home loans. Plus, they get a much bigger number to put on the top of the homepage (below): $74 million instead of $1 million.

    Other financial services participants include: Credit Karma (note 1), On Deck Capital and Geezeo. The campaign has its official launch today, although the website has been active since December (previous post).

    The timing of the UnCrunch launch is perfect, following President Obama's assertion last night that lending was the "lifeblood" of the economy. All active lenders, especially credit unions, should consider joining this effort or using similar themes in their marketing.

    UnCrunch home page (25 Feb 2009)

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    Virgin Money UnCrunch landing page
    (link, 25 Feb 2009)

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     Notes:
    1. Lending Club and Credit Karma will be participating in our upcoming Finovate Startup conference April 28 (see full lineup here).
    2. For more info on the market, see our Online Banking Report on P2P Lending.

    Comments

    Pertuity Direct Launches Financial Mashup: Consumer Loans + Mutual Funds + Social Finance

    By Jim Bruene on February 15, 2009 12:43 PM | Comments (1)

    clip_image002Last month I wrote about Pertuity Direct's impending launch. It's been live for a few weeks, and I've had a chance to review it in detail. The model is so unique, we created an entire special report on the company. It is available to our Online Banking Report All-Access subscribers here. Others can purchase for $195 here. And if you just want the executive summary, read on.

    Overview
    Pertuity Direct is an amalgamation of two financial services plus a social lending community:

    • Mutual fund: Retail investment assets are gathered via the National Retail Fund, an interval mutual fund created by Gemini Fund Services. The fund plans to invest primarily in consumer loans originated by Pertuity Direct (see note 1). At the outset, there are two mutual funds to choose from: one will invest only in loans to prime customers with credit scores of 720 or higher; the other will take on more risk and invest in loans to borrowers with 660 or higher scores. Minimum investment is $250 and current estimated fund expenses are 3.1%.
    • Consumer loans: Three-year installment loans of $1,000 to $25,000 will be originated by Pertuity Direct under state licensure. The loans will be sold to The National Retail Fund who will hold them until they pay off. Pertuity Direct will be paid a 1% servicing fee from the fund. Borrowers also pay a 1% to 2% loan fee at funding. The company is currently licensed in 37 states.
    • Social lending: The last, and least, piece of the product is a social lending forum, where mutual fund investors can purchase Pertuity Bucks to give to already-funded borrowers to help them repay their loans.

    Analysis
    Whether this should be called "peer-to-peer lending" is open for debate. Pertuity Direct makes all the loan decisions and sets the rates. Investors have no direct influence over which borrowers are funded. However, there is a social element because investors can donate to borrowers through the community area. The model probably most resembles a member-owned credit union or mutual savings bank.

    From an investor's standpoint, it's a unique opportunity to capture banking interest margin without actually buying shares in a commercial bank. The mutual fund is more like a bond, so it should be less volatile than owning equity. Although current estimated management fees of just over 3% are a drag on earnings, the company hopes the percentage falls as the funds gain assets.

    However, the mutual fund doesn't have the liquidity or upside of an equity investment. It's an interval fund, meaning they will allow some redemptions each quarter (note 2), but it's not publicly traded. There's also the matter of how they value the underlying assets of the fund. A proprietary model will value the consumer loan portfolio each day, but since the assets are not publicly traded, there is no way to really understand if that model is working until there is a performance history. 

    Summary
    Pertuity Direct does a credible job weaving these three disparate businesses together and its management team, with experience at PNC Bank and E*Trade, have great ideas on taking this business to the next level. But much remains to be done to educate the market and overcome the hesitancy of jittery investors. We will be following them closely (note 3). 

    Screenshot: Pertuity Direct homepage (2 Feb. 2009)
    The company posted a 3.5-minute YouTube video of founder Kim Muhota explaining the company's offering.

    image

    Notes:
    1. While the intention is to invest in Pertuity Direct-initated loans, the funds can also invest in other vehicles.
    2. The prospectus says that it will allow 5% to 25% of its funds to be redeemed each quarter.
    3. CEO/founder Kim Muhota will be participating in our FinovateStartup 2009, so you'll be able to hear directly from him.
    4. For more info on P2P lending, see our Online Banking Report on P2P Lending.

    Comments (1)

    Lending Club Regains Momentum, Posts 40% Gain in P2P Loan Originations Compared to Dec. 2007

    By Jim Bruene on January 9, 2009 7:12 AM | Comments

    image If you think your 2008 was stressful, imagine having to shut down for an extended and unknown period (it turned out to be 6 months) just 10 months after launch. Then spending hundreds of thousands of dollars on SEC paperwork that your major competitor avoided (temporarily it turns out), all the while watching that same competitor take your market share while you keep your mouth shut via SEC mandate.

    That was Lending Club's year. But unlike so many horror stories of the past year, this one has a happy ending, at least so far. Not only did Lending Club reopen for business Oct. 14 at our Finovate conference (demo video here), within weeks they had already moved ahead of last year's origination pace (note 1).

    As you can see in the table below, Dec. 2008 was substantially ahead of Dec. 2007 in all measures except average loan size and approval rate, which dropped a full 2 points:

    • Number of applications increased by 78%
    • Number of approved loans increased by 43%
    • Dollars originated increased by 29%
    • Average loan size approved declined by $1,000 (9.4%)
    • Overall approval rate was 8.5% last month compared to just over 10% a year ago

    Table: Lending Club loan origination results: Dec 2008 vs. Dec 2007

      Dec
    2008
    Dec
    2007

    Change

    % Change
    Number of loans originated 238 167 + 71 43%
    Dollars originated $2.28 mil $1.77 mil + $0.5 mil 29%
    Number of loan applications 2,798 1,575 + 1,223 78%
    Approval rate 8.5% 10.6% (2.1%) (20%)
    Dollar value of all applications $24.2 mil $14.4 mil + $9.8 mil 68%
    Average loan size approved $9,600 $10,600 ($1,000) (9.4%)
    Average loan size declined $8,600 $9,000 ($400) (0.4%)
    Site traffic (unique visitors) 78,000 58,000 20,000 35%

    Source: Loan volume from Lending Club, site traffic from Compete, calculations by Online Banking Report, 8 Jan 2009

    Here's the monthly origination chart (in US Dollars) courtesy of LendingClubStats.com who compiled the figures from data provided by Lending Club. 

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    Source: LendingClubStats.com, 8 Jan 2009

    Also, site traffic is up 35% year over year according to Compete. 

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    Source: Compete, 9 Jan 2009

    Notes:
    1. The number/dollars of loans originated and applied for at Lending Club in Oct. 2008, Nov. 2008, and Dec. 2008 were all higher than the respective months in 2007. 

    2. For more info on the market, see our Online Banking Report on P2P Lending.

    Comments

    New Peer-to-Peer Lender Pertuity Direct Nears Launch

    By Jim Bruene on January 8, 2009 1:28 PM | Comments

    image Just when it looked like U.S. regulators were about to kill the market for P2P lending, a new entrant is about to launch. Apparently, with the full blessing of government watchdogs.

    Pertuity Direct, originally scheduled to launch at our Oct 14 Finovate conference, is about to go live with a new approach to P2P lending. In an off-the-record discussion with founder Kim Muhota and marketing director Lisa Lough yesterday, I learned about their novel approach to make the service appeal to borrowers, investors, AND regulators. It could be the model for the industry going forward.

    While I'll reserve judgement until I can actually use the service (it's still in private testing), I'm impressed with the company's thinking and encouraged that it appears to have successfully navigated the regulatory minefield and will make it off the ground in early 2009.

    We'll cover it in more detail at launch.  

    Note: For more info on the market, see our Online Banking Report on P2P Lending.

    Comments

    ZimpleMoney Launches Peer-to-Peer Loan Platform to Power Social Finance

    By Jim Bruene on December 9, 2008 7:24 PM | Comments

    image Start-up activity in the financial technology sector has slowed dramatically since Sept./October when a dozen online finance startups launched (see previous post), not a surprising development given economic conditions and the time of year. 

    Still, a number of companies remain in the pipeline, and yesterday we saw the launch of an entrant into the battered P2P lending space. But ZimpleMoney is not entering into the newly SEC-regulated market occupied by Prosper, Lending Club, Loanio and other hopefuls. Instead, the Costa Mesa, CA-based startup is offering a platform with tools so that third parties can either build lending services on top of it, or use ZimpleMoney's processing capabilities to manage loans and financial transactions.

    ZimpleMoney can also be used like Virgin Money USA or LoanBack to handle a single loan amongst friends and family, either for personal or business use. The introductory price for an individual loan is $39 plus $7.99/mo.  

    The site, which opened Monday, still looks more like a beta operation. The registration system wasn't fully functional yesterday, and I ran into several broken links today. But minor annoyances aside, it's an interesting development that should help drive social finance forward.

    Given Prosper's recent woes, we are not likely to see new Prosper-like P2P exchanges using the ZimpleMoney platform any time soon. But it could be a good way for nonprofits, foundations, or microfinance organizations to launch Web-based loan operations with a minimal amount of development time and expense. Banks, credit unions, and other financial services companies could also private-label the service for their clients.

    In his announcement email Monday, CEO (aka ZEO) Steven Rabago said they'd had interest from several nonprofits, a realty company, an investment management company, a student lender, and a large regional bank. Rabago started his career as a commercial banker at Bank of America. He left in 1983 to start National Corporate Finance (now called Archarios). In 2001, he co-founded a location-based services company Telogis, where he remains as a board member.

    ZimpleMoney homepage (9 Dec 2008)

    image

    Note: For more info on the market, see our Online Banking Report on P2P Lending.

    Comments

    Loanio Shuts Down (updated with statement from Loanio)

    By Jim Bruene on November 26, 2008 12:35 PM | Comments (2)

    image It's 3 for 3 now. All major P2P U.S. peer-to-peer lenders have been shut down this year by the SEC (see note 1). First Lending Club in March, then Prosper Oct. 15, and finally Loanio this week (see note 1).

    Here is the statement I received from Loanio founder Michael Solomon this afternoon:

    In light of the recent cease-and-desist ruling issued to Prosper Marketplace by the Securities and Exchange Commission, Loanio voluntarily suspended its operations. We were not contacted by the SEC or any other government agency. The SEC ruling on Prosper, combined with the recent registration of Lending Club, removes all ambiguities as to the Commission's legal interpretation on the issue of whether P2P promissory notes, in all of their varieties, are considered securities under current law.

    Regulators have concluded that loans created in these networks are, in fact, securities and must be registered as such. You can read the SEC's logic in its Prosper filing published this week (here).

    I have mixed feelings. While I applaud regulators for taking the initiative to understand this new way of lending/investing, I find it a bit ironic that a $100-million self-regulating and relatively transparent marketplace receives heavy-handed treatment while multi-trillion dollar financial products grew relatively unchecked in recent years (see my prior editorial on the matter).

    The good news is that Lending Club has proven that SEC registration need not be a death sentence. The startup successfully completed the registration process after six months, relaunching at our Finovate event Oct. 14. The company has funded $2.6 million in loans since reopening.

    We are hopeful that Prosper, which has $40 million in venture funding, will be back in business in early first quarter. Angel-funded Loanio may need to raise money to finance the registration process.

    image

    Notes:
    1. Last month (here), the Loanio founder predicted that at some point he'd also need to register with the SEC.

    2. Fynanz and GreenNote, the P2P student loan lenders, appear to still be accepting lender funds.

    Comments (2)

    Chase Bank Offers to Lower Auto Payments by $44

    By Jim Bruene on November 13, 2008 6:24 PM | Comments (1)

    image It's a sign of the times. Instead of creating interest in auto loans by showing a sexy new convertible on a windy seaside road, Chase offers to help customers stay in their same vehicle with a lower monthly payment (see today's homepage below).

    Interestingly, the $44 number in the headline is the actual average savings to Chase auto loan refinance customers in August (see note 1 for how Chase calculated the savings). That makes the whole ad much more believable than the usual what-if scenario.

    Instead of burying that key fact in the fine print on the bottom of the landing page (second screenshot), Chase should make it the main headline of the landing page. The bank could go "social" with it by adding testimonials, a blog or forum, calculators (how about one for the iPhone?), a Facebook page, sweepstakes and even a scrolling activity ticker showing actual refinance savings as they happen, much like the Progressive auto insurance quotes (see note 2).

    It's not going to help Detroit much, but it's smart marketing for the pre-holiday period. A $44 lower monthly payment translates into $500 in annual savings, enough to put a little something extra under the tree this year.

    Chase Bank homepage (13 Nov 2008)

    image


    Landing page pop-up
    (13 Nov 2008)

    image

    Notes:

    1. Derivation of the $44 savings:

    Monthly savings figure is for illustration purposes only. $44.43 is the average monthly amount saved by customers who lowered their rate by refinancing their auto loans with Chase during the period from 7/25/08 to 8/21/08 on which we have the information to determine savings. These customers started with an average balance of $17,500, with an average remaining term of 49 months at an average Annual Percentage Rate (APR) of 10.50% and refinanced on average for 53 months at an average new APR of 7.31%.

    2. An activity ticker is one of our top-rated projects for next year as published last week in our Online Banking Report 2009 Planning Guide.

    Comments (1)

    Peer-to-Peer Lending Volumes Worldwide

    By Jim Bruene on November 12, 2008 6:09 PM | Comments (4)

    image Industry blog, P2P-banking.com recently compiled a list of peer-to-peer  loan volumes from around the world. The chart is reprinted by permission below.

    These numbers are cumulative, all-time volumes since inception. More than half is from Virgin Money USA which has helped individuals put $370 million in loans together since it began as Circle Lending in 2001.

    Because these companies don't all use the same model, I've revised the tables somewhat, excluding: 

    • Facilitators: My definition of peer-to-peer lending excludes Virgin Money and Loanback because they do not serve as matchmakers (note 1). They do play a crucial role in putting a legal framework in place for friends-and-family loans and often end up servicing the loans as well. They are more like PayPal where Prosper/Lending Club are like eBay.
    • Microfinance markets: I would exclude Kiva as well. It's an awesome platform that allows U.S. citizens to loan money to third-world merchants at zero interest. A powerful tool for philanthropy, yes, but not really peer-to-peer. The same goes for MyC4 and Microplace.

    So excluding the above companies, total worldwide originations are $262 million, with two-thirds of that from Prosper.

    Here are the market shares of the 8 true P2P lenders that have originated more than $1 million since launch:

    Company US$ (mil) WW Share
    Prosper (US) $178 68%
    Zopa (UK) $39 15%
    Lending Club (US) $20 8%
    Money Auction (Korea) $7.8 3%
    Smava (Germany) $5.8 2%
    Zopa (Italy) $4.3 2%
    Boober (Netherlands) $3.1 1%
    Other $4.5 2%
    Total $262 100%

     

    image

    Source: P2P-Banking.com, 28 Oct 2008

    Note:
    1. This does not mean I dislike Virgin Money's business model, just that its loan volume is not comparable to the others on the list.

    2. For more info on the P2P lending market, see our Online Banking Report on Person-to-Person Lending

    Comments (4)

    Receivables Exchange Launching Auction Platform for Financing Accounts Receivables

    By Jim Bruene on November 11, 2008 8:01 PM | Comments (1)

    image A new financial market will open Monday where businesses as small as $1.5 million in annual sales can borrow against their receivables with prices set in an auction market.

    New Orleans-based The Receivables Exchange opens for trades on Monday (17 Nov) after an 18-month development cycle.

    Businesses register with the exchange, a process that entails uploading financial statements and completing an application. The Receivables Exchange conducts due diligence on the potential participant to ensure that it is legitimate.

    Businesses must meet the following criteria:

    • Minimum of $1.5 million in annual sales
    • At least 2 years of operating history
    • Registered to do business in the United States

    Upon approval, the business can list specific invoices for financing, with a minimum total value of $10,000. Then accredited investors (SEC definition here) bid to provide short-term financing until the receivables are collected. Sellers are encouraged to upload PDF copies of invoices, proof of delivery, and so on to get the best rates. However, many documentation requirements are optional.

    Sellers select the terms they are willing to accept and the bidder that beats those terms by the widest margin wins the credit. If no bidder meets the minimum terms, the auction ends without a trade.

    Co-founders: Justin A. Brownhill and Nicolas R. Perkin

    VC backers: Prism VentureWorks LLC and Fidelity Ventures

    Analysis
    In an era of tight credit, it's a welcome addition to the financing tools available for small and mid-sized businesses. Larger businesses typically have more options through commercial paper and other capital markets.

    The startup expects banks to be valuable sources of referrals. Although, at this point, there are no referral fees or revenue-sharing options.

    So far, The Receivables Exchange has signed up sellers with a total of $2 billion in annual sales. And there's been a lot of interest. Founder Nicolas Perkin says his company has been approached by 20 $1+ billion companies.

    But what about the other side of the trade, the lender/investor? The company says it has access to $8 billion deployable capital. Of course, that doesn't mean that the capital will be easily enticed into actual deals.

    Starting Monday, we'll see what the buy side thinks. Are they willing to risk their capital in the unproven market? If The Receivables Exchange can drive out fraud and deliver on its promises, we think the answer will be yes.

    The Receivables Exchange homepage (11 Nov 2008)

    image

    Comments (1)

    E-Loan to Stop Direct Mortgage Lending but Will Maintain Loan Portal/Referral Business

    By Jim Bruene on October 24, 2008 5:22 PM | Comments

    image In the early commercial Web era (1995 to 1998), five financial startups inspired me in terms of their innovative products and services: 

    • E-Loan for mortgage
    • E*Trade for stock brokerage
    • Netbank for deposit-taking
    • NextCard for credit cards
    • LendingTree for lead generation

    These were my go to companies for ideas and inspiration when covering the space in the mid-to-late 1990s. In those days, traditional financial institutions were just getting started and were not as far along in features and functionality. 

    Sadly, two of the five have failed, NextCard in 2002 (here) and NetBank in 2007 (here). And the other three are struggling through the credit crisis.

    The latest downer: This week, E-Loan, owned by Banco Popular, announced its exit from the online mortgage origination business. Reading the headlines, I first thought they'd thrown in the towel altogether. But it turns out they are discontinuing only direct mortgage originations. The company will continue to use its popular website (see traffic below) to attract potential borrowers who are handed off to other lenders, something it already does today for student, auto, personal and business loans, along with credit cards. This is a potentially lucrative fee-based business with zero credit risk.

    It's a cautionary tale of how critical, and difficult, the execution piece is. These were industry darlings, always in the news and at the top of the search results. Yet, in financial services especially, you have to temper innovation with prudent underwriting and business practices. All three were brought down by credit-related problems. 

    E-Loan traffic has stabilized at around 250,000 uniques per month:

    image

    Comments

    P2P Lender Prosper Closes Marketplace to Lenders; Loanio Unaffected for Now

    By Jim Bruene on October 16, 2008 7:06 PM | Comments (5)

    image I was packing up my hotel room after five great days in NYC putting on Finovate, when I got a call from a reporter who asked me if I'd "heard the news." Since we'd been talking P2P lending earlier in the week, I figured his question was related to that. But I couldn't imagine what news could compete with the launch of Loanio, the closing of Zopa (US), the delayed launch of Pertuity Direct, and the grand reopening of Lending Club. That was already a full year's worth of major developments packed into a two-week period. 

    So I about fell off the bed when he told me Prosper had closed off new lending until the completion of its SEC registration process, entering the same regulatory twilight zone from which Lending Club had just emerged the previous day. And this was only 14 hours after Chris Larsen had been quoted in an upbeat Prosper company blog entry about the role of his company during the credit crunch (note 1):

    "At a time when every sector in the economy seems to be under pressure and shrinking, the growth Prosper has experienced is very respectable."

    Impact on Loanio
    Because I'd just spent an hour with Loanio founder Michael Solomon the day before at our Finovate conference, I immediately wondered if he might be facing the same registration hurdle. But I reached him a few minutes ago via email and he's thinking this probably benefits his new marketplace since lenders are frozen out of Prosper. He also doesn't expect to enter into a similar registration process in the foreseeable future.

    Here's his full statement:

    "...from the perspective of (Prosper) going silent, it is actually great for us as I think we will quickly gain lots of lenders and hopefully we can wow them into sticking around. From a regulatory standpoint, we believe that at some point we will seek to introduce a secondary market platform, but we will focus the greater part of the next 12 months on building our platform and seeking out a national bank partner to cover the rest of the U.S. Our plans for a secondary market are too far ahead for me to contemplate at this time."

    Thoughts
    Regulators certainly have a right to require transparency in the marketplace and protection for consumers. But Prosper, with an open API of its transactions, balances and even repayment behavior, and which uses a completely market-driven, open-bidding process to set rates and select loans to fund, is about as open a business as you ever will see, especially in financial services.

    For the sake of the nascent industry, I hope the registration is put on a fast track and Prosper is back in the game faster than the six months Lending Club waited. At this point, an alternative credit supply, albeit only $100+ million per year right now (note 2), sourced directly from willing individual investors and not from capital-constrained financial institutions, seems like something we should encourage.

    Ultimately, Lending Club and now Prosper should benefit from improved liquidity that the secondary market allows. Since Prosper is not allowed to comment on the move, we can only speculate on what happened. But the timing of all this seems a bitter irony. Wasn't a breakdown in the secondary markets a big part of what put us in such a bind now? 

    According to its blog, Prosper will continue to make loans "through alternative sources (of funds)" (note 3). So perhaps the impact to the Prosper marketplace will be small. Especially if they are back in full swing by year-end or early 2009.

    Notice on Prosper's website announcing quiet period (isn't that an oxymoron?) 16 Oct. 2008

    Prosper quite period announcement 16 Oct 2008

    Notes:
    1. See today's NY Times article for more info on this week's developments. Don't miss the picture of Lending Club CEO Renaud Laplanche standing outside the Finovate 2008 demo hall.

    2. For more info on the market, see our Online Banking Report on Person-to-Person Lending

    3. Presumably, to keep the loans flowing, Prosper can tap its own funds as well as those of institutional investors or other professional investors. We'll know soon, thanks to its open API.

    Comments (5)

    Zopa to Close U.S. Operation

    By Jim Bruene on October 9, 2008 11:39 AM | Comments (2)

    Article updated at 2 PM Pacific with quote from one of Zopa's partner CUs, Affinity Plus. 

    image Zopa's U.S. social deposit/lending site will be shuttered, just 10 months after its launch (see previous coverage here). The site, which delivered loan applications and CD customers to six credit union partners, apparently was closed by Zopa. At this point the exact reason is unclear (see update below). Zopa blamed the U.S. credit situation and said it wanted to concentrate its efforts in other markets. 

    Here's part of the statement from CEO Doug Dolton that appeared on the Zopa forum earlier today (also here's the official blog entry at Zopa UK):

    The facts are: Due to the extremely difficult consumer credit circumstances in the US, we made the decision to focus our ongoing efforts in the UK, Italy and Japan. We have six credit union partners in the US, and we have been working with them to modify our business model to offer our customers the best possible offerings, given the poor credit conditions in the US.

    We're certainly facing unprecedented economic times worldwide right now, but I am pleased to report that our UK and Italian operations are doing better than ever, and I look forward to continuing to develop those marketplaces. I apologise for any confusion regarding our circumstances.

    As of this morning, the Zopa US homepage is unchanged, but you can no longer sign up as a new member and all the Learn More links redirect to USA Federal Credit Union

    Implications
    It's surprising that the company would throw in the towel on the significant investment it made here. However, if Zopa's CU lending partners had curtailed, or stopped, making loans through the site, something noticed last week by the Prosper Lending Review blog, the whole strategy would no longer be viable (see update below).

    But this has nothing to do with what Prosper, Loanio (which launched last week) and hopefully Lending Club (expected be accepting new lenders shortly) are doing with person-to-person lending. Zopa US, unlike Zopa UK, was NOT a P2P lending site, it was a lead-generation site for six credit unions. When those CUs stopped needing loan-leads due to the credit crunch, it took the legs out from under the U.S. division. Even continuing to just take deposits made no sense, since each depositor was required to assist a borrower by gifting a portion of the deposit interest.

    We wouldn't be surprised to see Zopa back in United States in the future as a true P2P lending site, copying the model of its U.K. and Italian divisions. The social aspect of its offering certainly resonated with consumers and industry players as well. The company was one of four Best of Show winners in our April Finovate Startup conference, an award by majority vote from the audience (video here).

    For more information, see our Online Banking Report on Person-to-Person Lending. And those attending our Finovate next week will see two companies demo P2P lending. 

    Update: 2 PM PDT, 9 Oct 2008

    As one of the credit unions who were partnered with Zopa, I would like to clarify that we have no credit availability issues and have changed none of our lending practices. This decision was made by Zopa.

    -- Sarah Mason, SVP, Affinity Plus Credit Union

     

     

    Comments (2)

    Loanio Launches New Person-to-Person Lending Service

    By Jim Bruene on October 1, 2008 12:57 PM | Comments (3)

    image Add one more company to the list of recent launches: Loanio went live today after a lengthy "coming soon" process (previous coverage here). The thousands of people on its email list received a message this morning announcing the launch (see below). 

    Founder Michael Solomon demo'd the product back in April at our Finovate Startup event (video here). Today's live version looks similar to the April build. The key differentiating features of Loanio's product are:

    • Ability for anyone to borrow, if they have a creditworthy co-borrower
    • Optional enhanced pre-verification process (costs $35 for single borrower, $45 for co-borrower apps) allows borrows to boost their credibility by submitting the following documentation in advance of posting their listing:
      - Photo ID
      - Income documentation
      - Bank account statement
      - Employment documentation
      - Postal address documentation
    • Longer loan terms -- up to 5 years compared to P2P lending standard of 36 months
    • Borrowers have the option of accepting partial funding of their loan request as long as it's at least 35% funded

    Several other tidbits from the FAQs:

    • Experian provides the credit info on borrowers
    • Lenders pay a 1% service fee on all outstanding loans
    • Buyers pay an origination fee as follows, equal to the greater of $95 or:
      -- Loans with one borrower: 2% for A and B credit grades, 3% for all others
      -- Loans with co-borrower: 3% for A, B and 4% for all others
    • Borrowers may seek loans of $1,000 to $25,000
    • Lenders must put in at least $100 to participate with a minimum bid amount of $50

    The first borrower listing appeared on the site within the last hour or so, a C-grade credit seeking $2800 for debt consolidation (see screenshot below, note 1).

    Screenshot of Loanio home page with first loan listing (1 Oct 2008)

    Loanio homepage on launch day (1 Oct 2008)

    State coverage limited
    At launch, Loanio has gathered licenses to lend in only 22 states (see note 2). However, 10 of those have interest rate caps of 12% or less, so lending will be limited to the highly credit worthy, and one (Minnesota) caps the loan amount at $2550.  Here are the 12 states which Loanio primarily competes in today:

    State         Max Interest Rate
    Alabama 30%
    Georgia 30%
    Mississippi     30%
    New Mexico      30%
    North Carolina 30%
    Indiana 21%
    West Virginia 18%
    Wisconsin 18%
    Alaska 16%
    Nebraska           16%
    New Jersey 16%
    New York 16%

    These are the 10 states that allow borrowing from Loanio but cap the rate so that only those with excellent credit are likely to receive funding:

    State Max Interest Rate
    Tennessee 12.25%
    Hawaii 12%
    Louisiana 12%
    South Carolina 12%
    Virginia 12%
    Connecticut 12%
    Arkansas 11.25%
    Delaware 11.25%
    Kentucky 10.25%
    Pennsylvania 6%
    Washington D.C. 6%

    As you can see, there is no lending in major population centers of California, Texas, Florida, Illinois, Ohio, Massachusetts and for the most part in Pennsylvania with a 6% rate cap. But there are ways to change that and Loanio can at least get started in 10 states while it fine tunes its business and develops methods for lending in all 50 states. Prosper and Lending Club both originate loans nationally through Webbank before passing them to the individual lenders. This allows nearly full geographic coverage, while usually bypassing state-mandated maximum loan rates.

    Loanio joins Prosper, Lending Club, GlobeFunder, Fynanz, GreenNote and Virgin Money in the U.S. P2P lending space (currently, only Prosper, Fynanz, and now Loanio, operate true P2P exchanges). The others are either closed to individual lenders temporarily (Lending Club, GlobeFunder) or require borrowers to find their own funds from friends and family (GreenNote, Virgin Money). For a complete look at the market, see our Online Banking Report on Person-to-Person Lending.

    Email: Loanio now open (received 10:39 AM Pacific time 1 Oct 2008)

    Loanio email to house list announcing launch (1 Oct 2008)

    Note:
    1. Unfortunately, this loan is unlikely to be funded due to the max interest rate of 6%, likely because she is a Pennsylvania or Washington DC resident where the rates are capped at 6% (see table).
    2. Just about anyone 18 or older can be a lender regardless of where they live. Only South Dakota and Pennsylvania residents are currently ineligible to lend through Loanio.

    Comments (3)

    Web-based Self-Service Debt Collection Makes the News

    By Jim Bruene on September 19, 2008 3:46 PM | Comments (2)

    image

    It's not often that bank collection techniques make the business press, and when they do, it's usually not a good story. But last week's WSJ article by personal finance writer Jane Kim featured a relatively positive spin on how banks are working harder to collect revolving credit debt.

    She cited two examples of Web-based self-service applications trying to turn early collection efforts into a non-confrontational, positive experience including:

    • WaMu's self-service website, <wamucanhelp.com>
    • The Virtual Collection Agent powered by Online Resources that is being rolled out by three of the top-10 card issuers. The system was first shown to the public at last year's Finovate conference (video here)

    You can only look at the WaMu collection site if you have a WaMu credit card (screenshot below), but in perusing domain-ownership records, it appears to be hosted by Online Resources, so it likely resembles the screenshot below, a generic mockup from the Online Resources website.

    Note the settlement offer listed at the bottom of the page. This offer can be produced dynamically based on input from the user as they use the self-service site.

    What's innovative?
    While it won't work for everyone, collecting past-due debts is one of the trickier areas of bank operations. Financial institutions have to be careful not to be too aggressive early on so they don't appear heavy-handed and end up driving away an otherwise profitable customer, not to mention that customer's friends and family.

    That's why a gentle email/text reminder with a link to a self-service support area makes so much sense. Not only can you speed repayments from delinquent borrowers, but also garner valuable goodwill by offering a positive experience via a collaborative online tool. Given the current environment, Web-based collection efforts could maintain precious account relationships.

    Virtual collection agent from online resources (19 Sep 2008Virtual Collection Agent from Online Resources 19 Sep 2008

     
    WaMu's Web-based collection website <wamucanhelp.com> requires a WaMu card number for login  (19 Sept 2008)

    image

    Comments (2)

    Person-to-Person (P2P) Lending Update

    By Jim Bruene on September 4, 2008 2:38 PM | Comments (1)

    image Now that we are well past the mid-point of 2008, it's a good time to look at where we are with one of the most talked-about online financial subjects of the decade: person-to-person or social lending.

    Currently, two U.S. companies are actively originating unsecured, multi-purpose P2P loans (note 1): 

    • Prosper: Through July, the leader in the market is running 10% ahead of its 2007 loan-origination pace. The company has funded $55 million and is on pace to do just under $100 million for the year. Website traffic is up 15% compared to a year ago (see graph below) and through July there have been 13% more loan listings (see previous coverage here, Finovate 2007 Best of Show video here; monthly volume reports here).
    • Zopa: The company, which isn't technically person-to-person (the loans are originated by six credit union partners) but definitely has a social aspect to its loan program, has not revealed any numbers, but they list 475 loans on the "browse all borrowers page." Assuming average loan size of $8000 to $9000, they are doing less than $1 million per month. Zopa is using Google AdWords to pitch "instant approval" with a credit score of 640+ (see screenshot below), an aggressive marketing move, especially combined with the 8.49% APR touted on the landing page (see screenshot below; previous coverage here; FinovateStartup 2008 Best of Show video here).

    In addition, three more P2P lenders appear very close to launching or relaunching:

    • imageLending Club: The company, launched in May 2007, has been essentially closed to new business since March as they retooled loans into securities for regulatory reasons. However, the company is scheduled to present at our Oct. 14 Finovate conference, implying that they will be out of their quiet period by then (previous coverage here; Finovate 2007 video here).
    • Loanio: The startup appears to be very close to launching based on an a Sept. 3rd email sent to its house list announcing the launch "in just a few weeks" and adding in parenthesis (yes, we mean it this time!). The company will likely be the first to offer a co-borrower loan application (previous coverage here; Finovate Startup video here).
    • Pertuity Direct: The newest competitor in the space is Pertuity Direct which we wrote about last week. Its website claims a Sept. 15 launch, and we look forward to seeing their first public demo at Finovate on Oct. 14.  

    Finally, several companies are looking to launch P2P services in 2008 or 2009, including Globefunder, Community Lend (Canada) and one we just heard about today, Swap-A-Debt.

    Forecast revision
    Last December we published our second detailed Online Banking Report on Person-to-Person Lending. In that report, we predicted just under $200 million in originations this year. However, due to the inactive period at  Lending Club, the delay in Loanio's launch, and the more conservative approach by Prosper lenders, we are lowering the 2008 forecast by 25%, with an expected total of $135 to $150 million for the year as follows:

    • Prosper ($95 to $105 million)
    • Lending Club ($25 to $30 million)
    • Zopa ($5 to $10 million)
    • Loanio ($1 to $5 million)
    • Pertuity Direct ($1 to $5 million)

    P2P lending traffic from Compete (July 2007 through July 2008)

    image


    Zopa AdWords ad on "loanio" search

    (4 Sep 2008, 1 PM PDT from Seattle IP address)

    Google results from "loanio" search 4 Sep 2008


    Landing page
    (4 Sep 2008, link here)

    Zopa landing page from Google ad 4 Sep 2008

    Notes:
    1. Specialists are involved in the student loan piece (GreenNote and Fynanz) along with Virgin Money and Loanback which help with person-to-person loan documentation and servicing. 

    2. Top-right graphic from April 2008 ABC News segment on Lending Club and person-to-person lending.

    Comments (1)

    Pertuity Direct to Launch Person-to-Person (P2P) Lending Service

    By Jim Bruene on August 27, 2008 5:14 PM | Comments

    ">Link to website Last September, we wrote about the launch of Washington D.C.-based Pertuity Direct. At the time, the startup was showing some interesting social-personal finance tools such as Dare to Compare, which allowed users to compare their financial situation to their peers and national norms (see "before" screenshot below). It looked like another online PFM play.

    But it turns out the company's true business model is person-to-person lending (aka social or P2P lending) where it will compete with Prosper, Lending Club, Loanio, and others (see note 1). Its URL redirects to a non-functional placeholder page (below) that includes only an email signup (note 2).

    Here's the company description of its strategy:

    Pertuity Direct is bringing the next generation of social lending to the Web - integrating simplicity, liquidity and automatic diversification into the social lending model.

    The founder is Kim Muhota, an ex-banker out of PNC Bank. Pertuity Direct, which is currently closed to the general public, will demo its new product at our October Finovate conference.

    Current: Pertuity Direct placeholder page with email signup
    (26 Aug 2008)

    Pertuity Direct temporary homepage 26 Aug 2008


    Before: Pertuity Direct website before redirect put in place

    (see note 1, 26 Aug 2008)

    Previous Pertuity Direct homepage

    Notes:
    1. For more on the P2P lending space, see our Online Banking Report on Person-to-Person Lending.

    2. You can see the previous website content by following a deeper link available from Google.

    Comments

    Lending Club Adds Secondary Market to Updated S1

    By Jim Bruene on August 14, 2008 6:32 PM | Comments

    image Lending Club filed an amended S1 statement, a positive sign that it is moving through the registration process in a timely fashion.

    As we noted here after reading the original S1, Lending Club has indeed added a secondary marketing piece to its business plan. Holders of its notes (aka individual lenders), will be able to sell their Lending Club loans through a market run by an undisclosed third party.

    Here's the pertinent section from pp. 50-51 of the August 1 S1 (note: the name of the partnering broker-dealer is not disclosed; hence, the blank space below):

    Trading System
    Lender members may not transfer their Notes except through the resale trading system operated by           , a registered broker-dealer. This trading system is an Internet-based trading system on which Lending Club lender members who establish a brokerage relationship with the registered broker-dealer operating the trading system may offer their Notes for sale. In this section, we refer to lender members who have established such brokerage relationships as “subscribers.”

    Subscribers may post orders to sell their Notes on the trading system at prices established by the subscriber. Other subscribers will have the opportunity to view these prices, along with historical information from the original loan posting for the member loan corresponding to the Note, an updated credit score range of the borrower member and the payment history for the Note.

    I skimmed the updated S1 and didn't see anything else particularly noteworthy. Another blogger, Doughroller.net, noted that the company is adding more credit factors to its loan-pricing model. You can see the new formulas in the S1 filing (pp. 36-38).

    Comments

    FirstAgain Targets Online Users with Excellent Credit

    By Jim Bruene on July 8, 2008 6:00 PM | Comments (4)

    image I had a great conversation today with the founders of FirstAgain, a startup online lender from the same folks that brought us PeopleFirst Finance ten years ago.

    People First invented "blank check" auto lending, earning it  one of the first OBR Best of the Web winners (1998 article reprinted here). The company was purchased by Capital One in 2001.

    FirstAgain made its first loan in late 2006 and officially launched its unsecured AnythingLoan in July 2007. But the company is just gearing up to start lending in higher volumes after a $30 million venture investment from Arsenal Capital Partners in January. Merrill Lynch provides the warehouse line.

    Founders Gary Miller and Dave Zeller outlined their vision of simplifying online lending for customers that pose minimal repayment risk, the FICO 740+ crowd. Having watched them create a new segment in auto lending a decade ago, I expect they will succeed. The company has already originated more than $100 million in unsecured loans.

    FirstAgain homepage 8 July 2008

    What's Innovative?
    We've added FirstAgain to our watch list and will report back on its innovations in more detail. But here are two small things that demonstrate its creative approach:

    1. The little green tree icon on the homepage (see above) highlights the company policy to plant one tree for every loan originated. While that isn't exactly an earth-shattering benefit, it helps differentiate the company from fly-by-night website operators who'd never think about giving something back to the world.

    2. This is the best featurette I've seen in a while: "real" online signatures. Users "sign" their loan docs by moving their mouse to draw their signature online.  The company also offers a typing option, so users type their name on the keyboard and it's rendered on-screen with a standard script font.

    FirstAgain "real" online signature on loan doc (July 2008)

    I imagine FirstAgain is not the first to do this, but I've never seen it before. While this new doodad isn't quite enough to warrant another Best of the Web, it's still pretty cool, at least if you are an Internet banking geek.

    Comments (4)

    Scooter Loans from "Green" Credit Unions

    By Jim Bruene on May 21, 2008 6:14 PM | Comments (5)

    image According to the Wall Street Journal, scooter sales in the U.S. are up 25% compared to last year (article here). While still relatively rare in U.S. cities, I have a feeling that 10 years from now, after a steady diet of $5/gal gas, American cities will look more like their European counterparts, with scooters zipping about everywhere.

    For banks or credit unions, this might be the ideal time to jump on the scooter bandwagon by helping customers buy the energy-efficient vehicles. It would be a great way to grab a little PR boost during the slow summer-news cycle, and with some models selling for $4,000 or more, you could boost vehicle loan outstandings by a measurable amount.

    A brief Google search located two financial institutions pushing scooter loans, both appropriately with "green" in their name: South Burlington, VT-based Green Mountain Credit Union and a Wisconsin-based credit union (who's name we removed at their request in Aug. 2010 because the offer is no longer available and they still get inquiries from this post). 

    Evergreen is promoting a special one-day, 3.99% scooter loan on its homepage (see screenshot below and note 1). The Saturday morning event, conducted in partnership with a local scooter dealer, included test rides, free hot dogs, and prize drawings. The CU also gave away a scooter earlier this month as part of its 50th anniversary special.

    Benefits/Opportunities

    • Incremental loan originations: If you are a good relationship lender, the $4,000 scooter loan today could lead to many $25,000 car loans in the future. 
    • Search-engine marketing: Currently, there are no direct ads running on the keywords "scooter loans," although you will compete with several advertisers displaying against the generic "loan" in the search term. There are also few organic results for the term, so there's a good chance an SEO-optimized landing page would rate highly in Google results.
    • Leverage branch parking: One of the problems with urban scooter use is lack of available parking. Branches with parking could turn over one or more spaces for customers with scooters, creating good will, as well as the occasional picture on the 5 PM news.
    • Public relations: Anything that saves gas makes for a good story this summer and beyond. It can also be pitched as a "green banking" story, although it's not a pure environmental win. The gas savings are easy to see, but scooter emissions can be significantly higher than those of the automobiles they replace.
    • Starter loan/credit: If you can convince your underwriting staff to accept applicants with limited or no credit history, the scooter loan could be a great way for young adults to build a credit file and improve their credit score (thanks, Andrea, for the idea)
    • Customer acquisition: Scooter loans could be a great way to introduce younger consumers to your financial institution.
    • Trendy icon: At least for urban customers, the scooter, especially the classic Vespa look, makes for an attractive graphical image, conjuring up memories of trips to Italy, or at least movies shot there on location. Your scooter program could make for good website content, eye-catching outdoor feel (great bus ad!), and or a nice flourish for other media efforts.
    • Strike a deal with Scooter Financial: The number one result at Google for "scooter loans" is Scooter Financial, which does exactly what you'd expect, make loans to buy scooters. Given their name and Google pagerank, they could be an ideal company to partner with.

    Cons and potential problems

    • It's an asset easily hidden from the repossession agent, so it's harder to use the repo-threat to enforce outstanding debt. 
    • The accidental death rate for scooter owners is about 65% higher than that for cars; so you might want to be careful how much you push it as an "automobile alternative." But the news isn't all bad: Scooter owners are much less likely to perish than motorcycle owners. 
    • Most gas-powered scooters release significantly more pollutants than most automobiles.
    • The smaller loan sizes may lead to little, if any, profits.
    • Not a big market overall.
    Green Mountain Credit Union homepage promotes 6.49% scooter loans

    (21 May 2008)

    Scooter loans from Green Mountain CU homepage

    Credit Union homepage promotes Saturday "scooter loan" special (21 May 2008)

    image


    Comments (5)

    Prosper Kicks Off Nationwide Lending with New Slogan and TV/Radio Advertising

    By Jim Bruene on May 7, 2008 6:29 PM | Comments (1)

    imageArmed with a new national lending capability (note 1), new slogan, "Let's bank on each other," and a window of opportunity to gain ground on the competition (note 2), person-to-person lending pioneer Prosper is preparing new marketing initiatives which include television and radio advertising. Prosper said in its blog Monday that the ads will begin test runs this week. 

    The two television spots feature short vignettes of real lenders and borrowers (see screenshot below). Prosper has also posted brief "behind-the-scenes" videos of the borrower and lender meeting while giving gushing testimonials about the service.

    There is also a series of seven 30-second radio spots:

    • Meet the lender/borrower spots featuring same pairs as the TV ads (2 ads)
    • A young student borrowing from Prosper
    • A small business person borrowing from Prosper
    • A youngish woman borrowing from Prosper for debt consolidation
    • A man borrowing from Prosper for home improvement
    • A man borrowing from Prosper for a car loan

    Preview the ads here (note 3).

    Analysis
    It will be interesting to see how the advertising is received. From a branding perspective, I think the ads are extremely effective, doing a good job communicating the benefits to both borrowers and lenders. And Prosper positions itself as a smart bank alternative without getting overly negative (e.g., Lending Tree's $100-million "When banks compete" campaign in the late 1990s) or going so over the top (think WaMu) that you can't recall who made the ad (see previous coverage here). 

    One thing I'm sure of: Prosper did a great job showcasing the ads on their website, including the very Web 2.0 touch of posting "behind-the-scenes" videos of the TV commercials. 

    Prosper Brad and Lara tv advertisement

    Notes:

    1. Prosper recently changed its process so all loans are originated by Utah industrial bank, WebBank, then resold to the winning Prosper bidders. The TV ad above even carries the fine print that, "Prosper lenders are loan purchasers."

    2. Prosper's primary competitor, LendingClub, is currently operating at limited capacity as it seeks additional licensing/authority from regulatory bodies (coverage here). It, too, uses WebBank to originate all loans made through its platform. The latest entrant, Loanio, debuted its services at our April 29 Finovate Startup conference, but is still a few weeks away from a launch. A number of other P2P startups are in various stages of development with launches expected within the next 12 to 18 months. 

    3. For more information on the P2P lending market, see our Online Banking Report: Person-to-person Lending 2.0 

    Comments (1)

    Deja Vu: The First* Canadian Person-to-Person Lending Service Readies for Launch -- CommunityLend

    By Jim Bruene on April 17, 2008 8:10 PM | Comments (4)

    imageCommunity Lend reached out to bloggers last week to get the launch buzz started (note 1). The site appears ready to go, all it needs is a loan/borrow signup form in place the email notification box in the center of the homepage (below).

    From the look of it, the startup has a good design team. It's direct and to the point in the main section while staying fresh with blog posts, selected news stories, and press releases displayed in widget-like boxes along the bottom of the screen (below the fold on my laptop). But I'll reserve judgement until I see the actual lending and borrowing screens when they become available.

    The most interesting part of the pre-release info was the list of official advisors to the startup which included Virgin Money (US) CEO Asheesh Advani as well as the Phil Hopper, CEO of Australian P2P lender, iGrin. It will be interesting to see if those relationships turn into future Canadian partnerships.

    For more information on P2P lending, see our recent Online Banking Report (#148/149) and catch Prosper and Loanio on stage at our FinovateStartup April 29 in San Francisco.

    __________________________________________________

    *Technically, IOU Central was first in the Canadian market. However, a few weeks after launch it was forced to shut down as it works to satisfy regulators (coverage here). Therefore, the honor looks like it will go to CommunityLend.

     

    CommunityLend pre-launch homepage (17 April 2008)
    CommunityLend home page pre-launch

     
    Note:

    1. Blogger outreach is the modern day equivalent to the press conference. Dave Colman's emails to bloggers resulted in five blog posts that same day, and that's without any news other than its UNOPENED site had been remodeled. Think back to the last time you revamped your website, did you get five press mentions?  

    Comments (4)

    Q1 Prosper/Lending Club Loan Volumes Up 55% (Y/Y)

    By Jim Bruene on April 2, 2008 6:39 PM | Comments (3)

    lendingclub_logoLast week's post on P2P lending traffic prompted several comments on how worthless website traffic is as a metric, especially when the two major players make their loan-production numbers public. With that in mind, I present the Q1 total loan production for Lending Club and Prosper.

    prosper_logoWhile Prosper still had twice the overall loan volume of Lending Club in Q1 ($21 vs. $10 million), Lending Club is closing the gap in the prime/near-prime market (FICO 640+) originating two-thirds the volume of Prosper in March ($4 vs. $6 million). But if you take into account Lending Club's more stringent debt-to-income requirements (max 30%), the newcomer actually surpassed Prosper in these lower-risk loans ($4.1 vs. $3.7 million in March).  

    While the two-horse race is an interesting sidelight, the more important statistic is industry growth. In Q1, Prosper and Lending Club combined for more than $30 million in originations, up $10.7 million (55%) compared to about $20 million in Q1 2007. Only $3.4 million of the Q1 total (17%) was subprime, compared to $7.0 million (36%) a year ago.

    Loan originations doubled in the prime/near prime (Prosper grades AA to C and all of Lending Club) ending the quarter at just under $27 million.

    Why so much attention to a tiny sliver of the $2.5 trillion U.S. consumer loan market? It's new. It's different. It's social. And it's an experiment in online finance we get to watch in real time thanks to the transparency of the lenders. For more info on the market, see our recent Online Banking Report on P2P lending.

    Q1 2008 Loan Volume: Prosper vs. Lending Club
    in $ millions (U.S. only)

      Prosper
    All Grades
    Prosper
    AA-C*
    Prosper AA-C
    Low DTI**
    Lending Club*** Total
    Q1 2008 $20.5 $17.1 $10.7 $9.8 $30.3
       March $7.3 $6.0 $3.7 $4.1 $11.4
       Feb $6.0 $4.9 $2.9 $2.9 $8.9
       Jan $7.2 $6.1 $4.0 $2.8 $10.0
    Q1 2007 $19.6 $12.6 $8.0 n/a $19.6
    '08 vs. '07 +$0.9 +$4.5 +$2.7 -- +$10.7
    % change +4.6% +36% +34% -- +55%

    Source: Online Banking Report compilation of company data, 2 April 2008
    *Loans made to Prosper grade AA through C borrowers (FICO 640+)
    **Loans made to Prosper grade AA through C borrowers with debt-to-income (DTI) less than 30% 
    ***Lending Club only makes loans primarily to the "prime/low DTI" segment (FICO 640+, DTI <30%)

    Note:
    1. These prime/near prime/subprime distinctions can help financial institutions compare their prices to the marketplace rates.

    Comments (3)

    Person-to-Business Lending: A Wake-Up Call for Small Business Lenders?

    By Jim Bruene on March 12, 2008 3:16 PM | Comments

    image Talk about turning the tables. Now individuals are lending to businesses. Has the credit crunch gotten to that level?

    Small business lending, or the lack thereof, was highlighted in today's Wall Street Journal in a column by Jane Kim that ran on the front page of the Personal Journal section, Where Either a Borrower or Lender Can Be: Small-Business Owners Turn to Online Networks for Funds as Banks Tighten Credit (here).

    The article includes three examples of small business owners, frustrated with the stinginess of bank lending departments, that turned to person-to-person exchanges for loans. Apparently, all three had excellent credit since Mr. Walsh was able to borrow $22,500 at 10.25% and Mr. Kelley $18,500 at 10.97%, both from Prosper. And Mr. Kalempa received $15,000 from LendingClub for 9.6%. You don't get funded for loans of that size unless your credit is good and your story even better.

    Small business owners may not have time to shop for credit, but they do network. And given how unique positive borrowing experience are, these P2P success stories will be told and re-told dozens of times. The credit-crunch induced conservatism of the banking community, especially towards growing businesses, could be an HUGE opportunity for the new P2P marketplaces.

    It could be the crossing-the-chasm market niche that the loan exchanges need in order to gain traction and profitability as they position themselves for the mainstream consumer marketplace. The credit markets are huge and complicated and it's impossible to predict how this plays out. But if I worked in small business banking product management, I'd circulate this story to senior management and start working on my response to the P2P lending threat. 

    Comments

    P2P Lender IOU Central Suspended by Regulators

    By Jim Bruene on February 29, 2008 4:15 PM | Comments (2)

    image In what it hopes is a temporary set-back, Canada's IOU Central has stopped taking new loan applications or accepting bids on existing ones. The company was launched two weeks ago (coverage here). Evidently, a bit more work needs to be done before the site is fully blessed by the Canadian government.

    This might explain why IOU Central seemingly came out of nowhere to become the first Canadian P2P lender. We'll let you know what we hear from the founders. Thanks to Wiseclerk, via Prosper Lending Review, for the tip.

    IOU Central homepage (29 Feb 2008)

    IOU Central homepage


    Explanation of suspension
    (29 Feb 2008, 4 PM Pacific)

    IOU Central explains its halt in lending

    Comments (2)

    Quicken Loans Enters the Personal Finance Space with Quizzle

    By Jim Bruene on February 18, 2008 9:42 AM | Comments (3)

    image Two years ago, computerized personal financial management was a two-horse race: Intuit's Quicken vs. Microsoft Money. Both full-featured. Both relatively easy to use. But both were packaged software apps, clearly not the future of consumer computing.

    Fast forward to 2008: We now have two dozen startups, several banks, and other financial stalwarts, offering online personal finance of every size and shape (see Online Banking Report 142/143 and 131/132).

    image The latest entrant: Quicken Loans, which launched an open beta of Quizzle, an online budget and personal finance portal that features home values, mortgage advice, and free credit reports/scores from Experian (see note 1).

    Quizzle also calculates what it calls your Quizzle score based on your credit score, home value, savings, debt, and household income/expenses (see second screenshot, below). Debt payments are imported from credit report data, but users can edit the information or add other items to improve the results.

    Quizzle also provides home-value estimates calculated from public records, but in my case, it's no Zillow, and listed a home value that was significantly wrong (see note 1).  But it's simple to edit the number with your own estimate. Quicken Loans should consider tapping Zillow's API to provide a second opinion.

    The sign-up process
    Signup is simple with users providing name, address, birth date, email address, income, and home-purchase date. Email address is verified with a message that must be confirmed. Then identity is verified online using data pulled from the Experian credit bureau.

    This is the same procedure used by every online credit-report provider with one huge exception. Quicken Loans DOES NOT REQUIRE A SOCIAL SECURITY NUMBER, a huge usability and privacy gain. The company is allowing credit-report access based on a name/address/birth date match. That's a welcome improvement for the user.

    Analysis
    There are a few rough edges in the tool. The home-equity portion is not well explained. In my example, my home value was shown to be about $50,000 more than the loan balance. However, in the equity portion of the tool, it showed that my home equity to be zero. Evidently, the site uses an 80% LTV criteria to calculate the amount of home equity available to lend against. While that's a perfectly reasonable assumption in today's credit environment, it should be spelled out in detail.

    But overall, it's a great tool. The really free credit report and score alone are enough of a payback to gain consumer usage. The rest of the Quizzle score is less useful, but still interesting. And seeing it all in one place is fantastic. It will be interesting to see how Quicken Loans pulls me back to the site in the future.

    Quizzle is off to a great start, and I look forward to seeing more companies, including banks, credit unions, and card issuers, integrate credit scores/reports into their online offerings (see note 2).

    Overall scores:
        Look and feel (user interface) ==> A
        Credit information ==> A+
        Other tools ==> B
     

    Quizzle home (18 Feb. 2008, prior to entering a ZIP code)

    Quizzle from Quicken Loans home 18 Feb 2008


    Overview pages showing the makeup of the overall Quizzle score

    (upper right)

    Quicken Loans Quizzle main results page

    Note:

    1. Quizzle uses a 900-point scale for credit scores, padding 50 points to everyone's score compared to Fair Isaac's FICO that tops out at 850. This makes you feel a little better about your score. No doubt, credit score inflation will continue, with someone using a 1,000-point scale in the near future. 

    2. WaMu has provided free credit scores to credit card customers for several years.

    Comments (3)

    IOU Central Launches First P2P Lending Exchange in Canada

    By Jim Bruene on February 12, 2008 5:45 PM | Comments (4)

    image

    We were surprised to learn today that someone beat Community Lend to market, becoming Canada's first person-to-person lending exchange (previous coverage here). The Montreal-based startup, IOU Central, says they've been working on the company for a year.

    The company merged with an established Danish person-to-person lender FairRates <fairrates.dk>, whose co-founders, Robert Bialek and Arkadiusz Hajduk, are now on the IOU Central team.

    Much like its U.S. counterparts, Prosper and LendingClub, IOU Central facilitates installment loans of up to $25,000 CDN, with terms of up to 3 years.

    The company's homepage includes a YouTube video of its President, Phil Marleau, giving an 80-second overview of the company. Even more important, they have a testimonial from a former TD Bank EVP to the right of the video (see screenshot below).

    The company issued a news release today (here) that was picked up by several blogs (here and here). For more info on the market for P2P loan, and what financial institutions should do about it, see our recent Online Banking Report (here).

    IOU Central homepage on launch day 12 Feb 2007

    Comments (4)

    New Person-to-Person Lender GlobeFunder Now Accepting Consumer Loan Applications

    By Jim Bruene on January 16, 2008 7:37 PM | Comments (2)

    Three new P2P lenders are known to be preparing to go to market in 2008: image

    • GlobeFunder: Opened for loan applications earlier this month, but is still not accepting individual lenders at this point. I tried testing the loan application, but it would not accept requests from Washington state.
    • imageFynanz is the latest P2P lender to surface. According to the Prosper Lending Review blog, the company is gearing up to enter the U.S. market specializing in student loans, a space that Virgin Money USA has said it will enter later this year. Fynanz founder is Chirag Chaman, although he is not listed on the company's website.
    • imageLoanio: Has been saying "coming in January" for the past several months.

    In addition, I know of three others in formation and I'm sure there are dozens of others circulating business plans. With 100+ million potential customers in the United States, there is probably room for dozens to co-exist, although only a few will ever become household names.

    For a complete analysis of the market see our most recent Online Banking Report (here).  

    image

    Comments (2)

    Prosper Increases its Loan Fee by 100%

    By Jim Bruene on January 7, 2008 9:59 AM | Comments

    As noted in our recent research report on the P2P lending market (here), the exchanges need to boost revenues to remain viable. Even with scale, a 1% borrower fee and 1% servicing fee just don't provide enough revenue with the relatively small loan sizes currently being funded.

    For example, using Prosper's previous pricing on a typical $7,000 loan, about $130 would be earned in the first year, then another $50 for the remaining two years of the loan (see note 1), for a maximum of $230 in lifetime revenues per loan.

    So until loan sizes increase dramatically as secured notes become more common, Prosper has raised its prices for the core portion of its loan demand, the alt-prime and subprime portion. The company left its superprime, class AA price alone because it competes with banks and credit unions for this type of borrower.  

    As you can see from the table below, most loan-origination fees increased by 1 point, although C and D loans were increased 2 points. Looking at the company's mix of business during the first half of 2007, the new pricing would have doubled its loan-origination revenue from about $500,000 to just over $1 million. The weighted average fee under the prior pricing was 1.2%, compared to 2.4% under the new formula.

    Here's the new price plan effective Jan 4, 2008, as announced in the Prosper blog (here):

    Type   New Price   Previous  Change  Avg Loan*  Avg Loan Fee* 
    Prime  
      AA           1%               1%             none             $9,000            $90
      A             2%               1%            +1 point         $10,300         $210
    Near Prime
      B             2%                1%           +1 point         $9,800          $200
      C             3%                1%           +2 points       $8,400           $250
      D             3%                1%           +2 points       $6,500           $195
    Sub-prime
      E             3%                2%            +1 point        $4,500          $135
      HR           3%                2%            +1 point        $3,000           $90

    Weighted
      Average*** 2.4%          1.2%

    *Average loan size during the first half of 2007 per company
    **Loan-origination fee deducted from proceeds of loan; there is no fee if the loan does not get funded
    ***Using the loan mix from the first half of 2007

    Note:
    1. It depends how the servicing fee is calculated. At Prosper, it's calculated on the outstanding loan balance which for a $7,000 loan averages approximately $6,000 in year 1, $3,750 in year 2 and $1,250 in year 3.

    Comments

    Zopa Credit Union Partners Give it Top Billing

    By Jim Bruene on December 19, 2007 6:12 PM | Comments

    In researching our latest report on P2P lending, we visited the websites of Zopa's six credit union partners to see how they were promoting, and explaining, the relatively complicated new product. Overall, they gave Zopa surprising prominence. Five of the six mention it on their homepages, with three of those running large banners, usually in rotation with other offers (see list below as observed on Dec. 6). USA Federal Credit Union is the lone holdout, with no mention of Zopa on its website so far.

  • Addison Avenue FCU ==> Square ad on right side of hompage
  • Affinity Plus FCU ==> Banner on homepage 
  • First Tech CU ===> Two places on homepage, banner in the middle rotating with
        four offers and square box on right (see screenshot below)
  • FORUM CU ===> Small graphic and link on bottom of homepage
  • Provident CU ==> Banner on homepage rotating with four offers 
  • USA Federal CU ==> Not mentioned on website
  • Analysis
    I understand why the credit unions are featuring their Zopa relationship. It's new, it's different, it's exciting and the helping-others message fits right in with the holiday spirit. However, for the most part, the program is woefully under-explained when clicking through the banners. I have to believe the most common member reaction to seeing the Zopa product info is, "Huh?"

    It must lead to some interesting conversations on the phone and in the branch. Some of which may result in sales, so it's not all bad. But I don't think the ultimate purpose of partnering with Zopa is to confuse members to the extent that they call. There are easier ways to do that.

    Examples
    First Tech CU has two images on its homepage, both emphasizing Zopa's core message of helping. And the educational aspect is helpful (see screenshot below).

    Addison Avenue CU takes a light-hearted approach on its homepage ad, saying:

    Introducing Zopa (And no, it isn't a new energy drink)

    And Addison Avenue does the best job explaining the service, although I still think it raises more questions than it answers.  

    Comments

    New Online Banking Report Published: Person-to-Person Lending 2.0

    By Jim Bruene on December 18, 2007 11:41 AM | Comments (1)

    For much of the past four or five weeks I've been researching and testing person-to-person lending sites. I've become a lender and have gone through the borrowing process at all three major U.S. P2P lending exchanges: Prosper, Zopa, and Lending Club. Plus I set up friends and family with loans at Virgin Money USA and LoanBack.

    It was all part of the research process for the latest Online Banking Report entitled, Person-to-Person Lending 2.0: Disruptive service or market niche? That report is now available at our main website (here).*  

    I had originally intended on publishing it in early December. But as I was trying to wrap things up, Zopa launched its new U.S unit. So I stopped the presses and added an analysis of its unique model. Then as I was finishing that, Lending Club made a significant change last week, becoming a national lender instead of state-sanctioned one. That too is now in the report. 

    Here's a summary of the major fourth quarter activity in the person-to-person lending sector:

    • Oct. 2: Prosper overhauled a number of its lending tools, which were announced at our FINOVATE conference Oct. 2 (video here
    • Oct. 6: Virgin Money (formerly CircleLending) launched its revamped friends-and-family service with a splashy debut in Boston with Virgin founder Richard Branson leading the parade (coverage here)
    • Dec. 3: Zopa launched its U.S. version, an entirely new way of looking at the P2P space (coverage here)
    • Dec. 13: Lending Club went national in a unique partnership with WebBank

    ________________________________________________

    *Subscribers may download the report free of charge.
    Others may purchase it as an individual report.

    Comments (1)

    Zopa Launches U.S. Loan Marketplace Monday Night

    By Jim Bruene on December 4, 2007 12:55 PM | Comments (1)

    Just two days after its semi-public beta, Zopa US opened for business late yesterday. The announcement was in the Zopa US blog (here) and emailed to its house list this morning. See Sunday's NetBanker post (here) for our initial impression of the service.

    Below is a screenshot from Day 1, forever memorializing Zopa employee Scott, as the first (and so far, only) Zopa borrower. And since all Zopa lenders are required to help at least one borrower, Scott's payments on his $1,000 9.9% loan have been covered for the first year by the company's first 13 CD depositors.

    Comments (1)

    First Look: Zopa Opens in the United States with Depository Model

    By Jim Bruene on December 2, 2007 4:53 PM | Comments (3)

    Zopa US opened a private beta Saturday morning, emailing selected customers that had previously signed onto its mailing list. Both of our listed email addresses received invites.

    We'll look closer at the new service in our upcoming Online Banking Report on P2P lending, but what stands out is the business model: part P2P lender, part deposit-taking financial institutions, part charitable organization, part broker, and part lead-generation site. I'm not positive you can be all of those things at once, but it will be fascinating to see if Zopa and its partner credit unions can pull it off.

    How it works
    To understand how the Zopa US system works, you must first realize that all loans and all deposits are held at the six partner credit unions (see list below). So in that way, Zopa is a pure lead-generation play.

    Zopa "investors" put their money in fixed-rate, 1-year certificates of deposits held by a credit union partner. Borrowers take out 5-year fixed-rate personal loans, again from a credit union partner. This part is pure depository financial institution, with Zopa as a broker. 

    Finally, the P2P/social finance aspect comes into play with the requirement that all depositors must choose to "help" at least one borrower by reducing the borrower's loan payment. The depositor has the choice of accepting the highest rate of interest, currently 5.1%, and making a token donation, or sharply reducing the APY on the Zopa CD in order to provide more financial assistance to Zopa borrowers. Depositors select who they want to help from the listed loans. An obvious scenario would be a grandparent investing a substantial sum into low-interest Zopa CDs, so that a child/grandchild could take out a 5-year loan to help with a down payment on a house. But depositors may also help a stranger whose story they find appealing. 

    Our preliminary take
    Zopa has removed much of the uncertainty from the P2P lending process. But by eliminating the risk, they've also reduced available returns. Marketing Director Wade Lagrone, with whom I spoke Saturday afternoon (as Zopa engineers hammered away on the final tests), believes that U.S. investors overwhelmingly prefer low-risk, fixed-income investments and will prefer this P2P model.

    I'm not convinced yet. It seems like a somewhat convoluted path to buy a simple CD. First, you must set your deposit rate, choose one or more borrowers to help, and finally join one of the six credit unions. The website makes the process relatively straightforward, but it's not the same as simply dropping a few grand into an online bank. 

    On the other hand, the ability to donate all or part of your deposit's interest-yield could appeal to certain investors, especially the well-heeled looking to help family members obtain below-market-rate loans for defined purposes (home purchase, education, business expansion, etc). And eliminating lender risk removes the huge chore of keeping lenders happy and informed about their book of loans. 

    Another potential problem is lack of transparency for borrowers. To obtain a Zopa loan, prospective borrowers fill out a nonbinding "loan quote." Not until after this application is made, and a credit inquiry logged, do borrowers find out if they will receive the lowest rate of 8.75% or the highest of 16.99%. And borrowers have no idea whether they will receive "help" from investors to lower their payment, and effectively reduce the APR of the loan.

    Screenshot: Zopa CD setup (1 Dec 2007)
    Zopa investors (aka lenders) select the rate of return for their 1-year CD and then choose a borrower to help by offsetting a portion of their Zopa loan payment.

     
    Appendix: Credit Union Partners
    The six U.S. credit union partners of Zopa US:

    • Addison Avenue Federal Credit Union
    • Affinity Plus Federal Credit Union
    • FirstTech Credit Union
    • FORUM Credit Union
    • Provident Credit Union
    • USA Federal Credit Union

    Comments (3)

    Congestion at the Starting Gate? Three New U.S. P2P Lenders Set to Launch: Zopa, GlobeFunder, and Loanio

    By Jim Bruene on November 28, 2007 10:59 AM | Comments (8)

    Less that two years after the first P2P launched in the U.S., it looks like we'll soon have at least five companies chasing this new market, six if you include Virgin Money.

    The most well known is Zopa, the person-to-person lending pioneer which opened in the UK in 2005 and now has nearly 200,000 members. Its long-awaited U.S. launch is scheduled for next week. I'll be speaking with marketing director Wade Lagrone tomorrow, but Jane Kim broke the news in today's Wall Street Journal (here). The market forecast in the article, predicting as much as $9 billion in P2P originations by 2017, is from our upcoming Online Banking Report on P2P lending (note 1). 

    Zopa is working with six credit unions, including FORUM Credit Union, to match lenders with borrowers. And unlike other P2P lenders, Zopa's is guaranteeing the lender's principal. That will reduce potential returns, but make participation more like buying a CD from a bank. So, it will be interesting to see how the company differentiates its offering from traditional bank/credit union fare. We'll have more when the site opens to the public next week.

            

    We also hear that GlobeFunder and Loanio are about to launch, possibly yet this year. Loanio has not revealed its strategy, but GlobeFunder is positioning itself as a microlender in the same vein as the Nobel prize-winning approach of Grameen Bank. For more info, read the GlobeFunder blog.  

    All three will be included in our upcoming Online Banking Report (note 1). We'll also look at Prosper, Lending Club, LoanBack, and Virgin Money (formerly Circle Lending).

    Note:

    1. Online Banking Report subscribers will have access to the report as soon as it is published on Dec. 8. Nonsubscribers can put their name on the announcement list here and receive a prepublication discount code to save 10%. Please mention "P2P report" in the subject line.

    Comments (8)

    Virgin Money P2P Lending on the Cover of Fortune Small Business

    By Jim Bruene on November 26, 2007 6:42 PM | Comments

    Jeff Bezos may have grabbed the cover of Newsweek for the latest high-tech gadget, the Amazon Kindle, but that's old hat for him. The bigger news in online banking circles is Richard Branson gracing the cover of the December/January issue of Fortune Small Business (click on the inset to read the magazine online). His smiling mug is shown tossing hundred-dollar bills out of a teller cage. 

    The reason: Virgin Money USA (previously Circle Lending) is one of six new products/services the magazine included in its annual "The Next Little Thing for 2008" series. To be part of the article, the innovation must be coming from a "small business," although I'm not sure Virgin qualifies as small anymore.

    The 1.5 page story discusses the Business Builder "friends and family" loans that Virgin will administer for a one-time cost of $199 to $299 plus $9 per payment. The company says it plans to offer a business loan product later in 2008 or 2009 that will match outside money to the original friends and family loan, provided it's been paid on time. 

    Could 2008 be the year of person-to-person lending? Given Branson's track record, there's a good chance the relatively unknown service will take off next year.   

    Note:

    1. According to my recollection. 

    Comments

    Blog Sighting: Carolina Postal Credit Union's Irreverent "I Love My Hoopty"

    By Jim Bruene on November 20, 2007 9:32 AM | Comments (2)

    Finally, we have someone using a blog to have a little fun (note 1). Carolina Postal Credit Union's blog, I Love My Hoopty, is using humor and user-generated content to drum up car loan business. Through its website and blog, the CU asks users to write about and post pictures of their first cars, and the more rickety the better. I wasn't familiar with the term, but apparently in this context "hoopty" means an old rickety car. 

    The hoopty theme is also used on the CU's homepage to promote vehicle loans (see second screenshot below). 

    Analysis
    Since I'm twice the age of the target market here, it doesn't matter that the blog's content doesn't resonate with me. I LOVE the creativity and I'll bet the younger, Colbert-Report-watching crowd thinks it's pretty cool that a bank/credit union would do something this irreverent. 

    Unfortunately, the follow-through doesn't look nearly as good as the creative. I first noticed this blog a few months ago, and until last week, it hadn't been updated since July. It doesn't really make sense to have a blog that's only updated a few times per year. If the CU doesn't have the resources to add something at least once per month, it should pull the blog down and incorporate the content into its main website.

    Also, I question the prominence of the campaign on the CPCU homepage. Is that really the main message you want displayed to your members for several months? Even if does fit the overall brand strategy, the CU should change the banner ad's hyperlink. Currently, it goes to the hoopty blog (after a short detour to acknowledge that they are leaving the CU's website), which is not an effective landing page. The CU should first take users to a dedicated lending page that explains loan options and prices and invites members to apply.

    Carolina Postal Credit Union blog (20 Nov 2007

    I love my hoopty blog


    CPCU homepage
    (20 Nov 2007

    Note:

    1. UMB used a similar approach in its My Ugly Room contest a year ago. 

    Comments (2)

    Virgin Money USA Launches in Boston/NYC Today

    By Jim Bruene on October 15, 2007 10:22 AM | Comments

    Link to Virgin Money USA Ever since Virgin bought CircleLending for $50 million earlier this year (previous coverage here), I've been looking forward to its launch. We hoped they might launch at our FINOVATE conference two weeks ago, but we lost out to the Mortgage Banker's Association's 94th Annual Conference in Boston, where Sir Richard Branson delivered the opening keynote a few hours ago. 

    According to today's NY Times, Sir Richard himself will hand out red "dollars" today in Boston's Copley Square while mere mortals will be doing the same in Manhattan. 

    We now have answers to several questions about the new venture:

    1. Will Circle Lending's product, person-to-person loan administration and servicing, live on?
      Answer: Yes, in fact it looks identical, but with much more marketing pizzazz.
    2. Will the Circle Lending product be extended into a person-to-person loan marketplace like Prosper and LendingClub?
      Answer: Not yet, but I still expect that to happen.
    3. Will Virgin Money use person-to-person lending as an entry point for a full line of financial services?
      Answer: Not yet, but there has to be more coming.  
    4. Will Virgin Money bring the hip U.K. direct-banking vibe to the United States?
      Answer: Yes, the website is very progressive by U.S. banking standards (see screenshot below). I haven't seen any other media efforts yet. However, the current homepage design is marred by an annoying Flash display that is a real turnoff even on a broadband connection. Once you get off the homepage, the rest of the website is excellent.

    According to today's Boston Globe, the company currently employs 30 in Waltham, Mass., a headcount that will double the over the next year as it introduces more services. The only new service disclosed so far is student loans, an obvious fit with the friends and family real estate, business, and personal loans offered today. We'll be following Virgin Money USA closely and will include an in-depth analysis in an upcoming Online Banking Report on person-to-person lending (2006 report is here).

    Virgin Money USA homepage (15 Oct 2007)

    Virgin Money US homepage

     Goodbye page at CircleLending.com (15 Oct 2007)

    Circle Lending referral page to Virgin Money USA

    Comments

    Mortgagebot Launches New Mortgage Exchange, Mortgage Marvel

    By Jim Bruene on October 1, 2007 7:18 AM | Comments

    One of the great promises of the Internet is a better shopping experience. While most retail products have indeed become easier to shop forthink automobiles or vintage postcardsthe financial services experience is still a mixed bag.

    It's certainly much easier to compare savings rates online, a capability that has fueled growth at ING Direct and others. But loans are still much harder to shop for. The lead-generation sites, such as BankRate, GetSmart, LendingTree and Interest.com, have made it easier to contact multiple lenders, but in most cases, the customers still has to select a single lender, complete an application, and hope that there are no nasty surprises at closing in the form of extra fees or higher rates.

    However, Mortgagebot is about to change all that and hopefully usher in a new era of transparency in mortgage pricing, with the launch of Mortgage Marvel, making its debut at our FINOVATE conference tomorrow.

    How it works
    Mortgage Marvel is a destination site where mortgage shoppers can search and find actual rate and fee information for participating lenders, usually at a nearby bank or credit union. And there is no personal info required, just the loan amount, property value, and zipcode. If the shopper finds what they want, a simple click on the APPLY button sends them directly to the lender's application to lock in the rate and fees listed (see screenshot below).

    The key to making the marketplace work is having a wide variety of participating lenders with recognizable brand names at the local level. Normally, that's extremely difficult. But Mortgagebot, with more than 700 bank and credit union clients on its mortgage platform, can plug its existing client base into the exchange with ZERO systems integration (note 1). Currently, there are 250 lenders on the system.

    And Mortgagebot clients have little to lose by placing themselves into the exchange which for the most part, only charges fees when mortgages are originated through the marketplace.

    Right now, all mortgage lenders are displayed equally in order of lowest APR. But in the future, the company may offer preferred placement for additional fees.

    Summary
    For the first time, U.S. consumers can easily shop and compare the total price for mortgages from competing lenders. And thanks to the Internet, they can complete an application in less time than it takes to drive to the nearest loan office.

    Note:

    1. Currently, only Mortgagebot mortgage-platform customers are allowed to participate in the network.

    Comments

    Online Banking & Lending Tools at FINOVATE

    By Jim Bruene on September 19, 2007 5:50 PM | Comments

    Much of what we cover at NetBanker falls under the traditional "marketing 4 Ps": product, place, price and package. But, there are also hundreds of important things going on behind the scenes that can make or break a company's Web presence. We are lucky to feature two important tools at our upcoming FINOVATE conference Oct. 2 in NYC.

    Online Account Opening from Andera
    During the past two years, few areas have received more attention within banks and credit unions than the tricky business of online account opening. It's an absolutely critical element of turning a profit online but also an area rife with risk, error, and the potential for turning away potential new business. We are pleased to have Andera on stage, a company we are seeing more and more of as we drill down through the offerings of major credit unions. The company is a major force in online account opening with more than 125 clients including: Alliant Credit Union, Associated Banc-Corp, General Mills FCU, American First FCU, Toyota Federal Credit Union, First Mid-Illinois Bank & Trust, Energy First Credit Union, CSCEFCU, Service Credit Union, and Bank Rhode Island. Its recent alliance with Yodlee (press release here) opens up even more opportunities. We look forward to seeing its account-opening process in action at FINOVATE.

    Web-based Collections from Online Resources
    I first met Online Resources in 1992, when its national sales rep visited Seattle to show us their cool smartphone-based banking service. I was new in my R&D assignment looking at alternative delivery methods for US Bancorp, and I really thought there would be a market for this hybrid call center/online banking solution. Of course, that was before the Web burst on the scene three years later. Luckily, Online Resources didn't have all its eggs in the telephony-based basket and adapted quickly to become a leader in Internet banking and electronic payments. The company is a two-time OBR Best of the Web winner, in 2003 once for its novel MoneyHQ premium online banking service and via acquisition of InCurrent which, in 1998, took home one of our first awards for its futuristic online credit card management service. 

    At FINOVATE, Online Resources will be showing its Virtual Collection Agent. I have not yet seen it in action, but from the briefing it sounds like a smart way to improve actual collection yields while maintaining the customer relationship during a very tricky time. 

    Comments

    FINOVATE 2007 Lineup: The Lending Innovators

    By Jim Bruene on August 27, 2007 4:38 PM | Comments

    As we enter the final week of summer, we will begin showcasing the companies that will be DEMOing new products and services at our inaugural conference FINOVATE 2007. See here for the complete lineup.

    Person-to-person lending
    P2P lending has grabbed headlines around the world since it launched in the the United Kingdom in March 2005 by Zopa. We are pleased to have on the FINOVATE agenda the two leading U.S. providers: Prosper, the brain-child of E-Loan founder Chris Larsen, and Lending Club, which launched its exchange on the Facebook platform just three months ago.

    Both companies received significant cash infusions this summer and we're looking forward to seeing what enhancements the lenders will showcase at FINOVATE 2007.

    Lending Club received a significant $10.3 million first round last week (blog entry here). Since the company's launch of Facebook three months ago today, it has closed 134 loans averaging approximately $5,600 for a total of $750,000 in originations.   

    In June, Prosper, the winner of an OBR Best of the Web award last year (note 1), secured a $20 million third round bringing total funding to $40 million (previous post here). The company now has more than 380,000 members and has funded nearly 14,000 loans totally $80 million. Since inception, Prosper has posted more than 168,000 loan listings from more than 75,000 borrowers.  

    Mortgage lending
    Here's a bit of trivia for Monday afternoon (or Tuesday morning if you read NetBanker via email): What was the first profitable banking website? And no, this is not a trick question with the answer being "none" or "no one knows" (see note 1).

    The answer: Bank of America in 1994, or at least that's what an exec told the audience at the first conference on Internet banking held in the summer of 1995. Practically before anyone outside of academia or Silicon Valley had heard of the Web, BofA was using it to produce mortgage leads in the lucrative California market. I can clearly remember the woman who ran BofA's website saying, "mortgage leads are already more than covering the bank's costs (of its website)." Of course, that was in the days when a website cost less than a couple billboards.   

    We've been writing about online mortgage lending since that first 1995 conference. One of our favorite lending platforms, winner of the second mortgage-related OBR Best of the Web award in 2001, is MortgageBot. The company was also named to last year's INC 500 list of the nation's fastest growing private companies producing a 560% revenue increase during the YE 2002 through YE 2005 period. 

    At FINOVATE 2007, MortgageBot will take the stage to show a radical new approach to mortgage shopping that its been testing for some time now. We can't release the details yet, but we were luck enough to get a sneak peek on Friday and were very impressed!

    Note:

    1. Our sister publication, Online Banking Report (OBR), typically names 6 or 7 companies as "Best of the Web" during the course of each year. It is earned by launching a product or service that significantly "raises the bar" in online delivery of retail banking and lending products.

    Comments

    Zopa's International Expansion

    By Jim Bruene on August 25, 2007 10:40 AM | Comments

    Link to Zopa ItalyI think I understand Zopa's delayed U.S. launch a bit better now. Apparently, the company is looking to expand not just in the U.S. but in Asia as well (along with the previously announced Italian licensee).

    Here's a quote from a recent blog entry

    "...we have had over 100 different teams in over 40 countries get in touch with with us, looking to launch a version of Zopa locally. These have ranged in distance from France to New Zealand, and included countries as diverse as Brazil, Mexico, Canada, India, Japan, Korea, Taiwan, Australia, South Africa, Ghana, Turkey, Spain, Germany, The Netherlands, Poland, Slovakia, Lithuania and Romania."

    We've seen that interest at Online Banking Report as well. Our Feb. 2006 report on Prosper and P2P lending was our best selling issue of all time. We're planning an update later this year, hopefully with an analysis of Zopa's U.S. version, which the company still says is coming this year.  

    Comments

    Green (Hybrid) Auto Loans from Star One Credit Union

    By Jim Bruene on August 10, 2007 4:19 PM | Comments (2)

    In many ways, hybrid vehicles are the perfect antidote for guilt about our 21st century high-consumption lifestyle. Buy a Prius, and instantly feel better coasting around the city on self-generated battery power. Yet you still get to motor about in a relatively large, well-appointed and air-conditioned steel box (note 1).  

    That's why politicians have jumped on this bandwagon in droves. And why it makes a great marketing statement to support energy-saving and/or low-emission alternatives with loan discounts. Not only does it position you as caring about the larger environment, there is a very real environmental education benefit to the efforts.

    The most recent exampleStar One Credit Union <starone.org>, a $3 billion (assets), 71,000 member CU based in Sunnyvale, Californiahas a link on its homepage to its hybrid offer. Customers financing a new or used hybrid vehicle save 0.25% on their loan rate. On a $20,000 5-year loan, $139 is saved, enough to fill the tank three, maybe four times. The offer is spelled out here (screenshot below).  

    Other financial institutions offering hybrid car loans:

    • UCB Bank (Miami, FL): no payments for 3 months offer here
    • Deedham Savings (Deedham, MA): offer here
    • Sound Credit Union (Tacoma, WA): 0.50% discount offer here
    • Tech CU (San Jose, CA): 0.25% discount offer here
    • Vancity (Vancouver, BC, Canada): Prime rate for low-emission vehicles here

    Note:

    (1) I'm not trying to be cynical here. As a former engineer, I think hybrid technology is fantastic. Using waste energy to fuel the car is both elegant and efficient, and I look forward to driving one soon.

    Comments (2)

    Smart Car: The Next Must-Have Banking Sweeps Prize

    By Jim Bruene on July 11, 2007 10:45 AM | Comments (1)

    Looking for an eye-catching grand prize for your fall sweepstakes? You can't beat the new Smart fortwo car hitting to hit our shores in six months. According to today's Wall Street Journal (here), more than 20,000 (make that 20,001) have already plopped down $99 for a "reservation" for the Smart fortwo (here).

    Not only is this a sexy sweeps prize, it has green appeal as a less resource-intensive vehicle compared to larger gas cars. While hybrids will still be more fuel efficient for in-city driving, the $12,000 base price makes it much more affordable that the $20,000+ Prius.

    With the perfect storm of higher gas prices, the rebirth of environmental awareness, and America's obsession with cars, the Smart micro is almost guaranteed to be a hit, at least in urban markets. Anyone who's been in Europe in the last 10 years knows how popular these cars already are.

    Financial Institution Opportunities
    There's hundreds of ways to use a coveted, and potentially rationed, consumer product in your marketing efforts. For example:

    • At $10,000 less than the Mini Cooper, this is the cost-conscious choice for a sweeps grand prize
    • Use the car to reinforce your smart banking choices such as paperless banking, auto bill pay, and so forth
    • Smart loans that include a preapproved auto loan along with a reservation for the car
    • Use the car's "CO 2 champion status" (see inset) to reinforce your green banking efforts
    • Paint the car with your brand and provide smart rides around town...include a form on your website for requesting a ride; for extra credit offer text message reservations
    • Work with Smart USA dealers in your area to offer joint promotions

    And you already know we have a weakness for the car; so as an added benefit, any banking promotion involving it has a great chance of making it to the pages of Netbanker. Just give me a heads-up here

    Comments (1)

    New Person-to-Person Lender Loanio Readies for Launch

    By Jim Bruene on June 1, 2007 9:29 AM | Comments (9)

    Just as the dust was clearing from the latest social lending launch, Lending Club, which opened on Facebook exactly one week ago (coverage here), we received word of another P2P lending exchange Loanio. The founder is revealing little about the new company at this point, but you can see from its logo and tagline, People Lending to People, what market it has its eyes on. 

    Loanio's one-page website allows you to enter your email address for future notifications. We'll be covering all six North American P2P lenders (see note) in an upcoming update to last year's Online Banking Report on the market for P2P loans. (Hint: we will publish a longer-term forecast which will show more robust opportunities past the 2006-2011 period we looked at in our last report.)  

    Note:

    Right now the North American market consists of five pure P2P lenders:

    • Prosper (US, launched Feb. 2006)
    • Zopa (UK, but coming to the US in 2007)
    • Lending Club (US, launched 25 May, 2007)
    • Community Lend (Canada, not launched)
    • Loanio (US, not launched)

    Plus, P2P loan servicer:

    • CircleLending (now owned by Virgin USA, launched 2001)
    Comments (9)

    New Person-to-Person Lender, Lending Club, Hopes Facebook Linkage Allows it to Prosper

    By Jim Bruene on May 25, 2007 12:13 PM | Comments (1)

    Link to Lending Club homepage Just as we are putting the finishing touches on our latest Online Banking Report, which looks at the intersection of personal finance and social networks, a new person-to-person lender launches. And how do they plan to gain traction? Through tight integration with Facebook, the second-largest social network. So we are holding the presses, and adding this important new development to our upcoming report.

    We'll have much more on it later, but if you are curious now, login to Facebook and check out Lending Club (the easiest way is to login via the link at the top of the Lending Club homepage). Or read Colin Henderson's great analysis here.  

    Last year, Facebook developers created a proof-of-concept personal finance app, originally called Facebank, then changed to MoochSpot (see previous coverage here). That effort was designed to show how third parties could leverage the Facebook API to create new services. It didn't take long for someone to take the bait. Within a few weeks, BillMonk created an interface to Facebook to support their expensing tracking service, now owned by Obopay. Buxfer also supports login via Facebook's username/password (post here), but does not link into the social network as yet.

    But Lending Club is the first to leverage the Facebook interface to support actual financial transactions, in this case lending/borrowing. The company is modeled after Prosper. Lending Club timed its launch to coincide with the Facebook developer's meeting and launch of Facebook Platform.

    We'll be testing it during the next few days and will report back on whether its a challenge to mainstream lending, or merely blog fodder. Given the rising power of social networks, my guess is the former. 

    LendingClub homepage from outside Facebook

    LendingClub homepage mockup

    LendingClub homepage from inside Facebook

    LendingClub page inside Facebook

    Comments (1)

    1995 Web Pioneer, Salem Five Launches Mobile Banking

    By Jim Bruene on May 8, 2007 6:57 PM | Comments (1)

    Salem Five morgage coupon in use from 1995 to 1997+Twelve years ago I spoke at the very first for-profit conference on online banking. It was held in San Francisco and put on by IQPC. One of the handful of bankers taking the stage was the marketing director from a small Massachusetts-based bank, Salem Five Savings Bank

    In 1995, Salem Five was one of the first 100 banks in the world to launch a website and continued to pioneer website functions during the last century, even launching a dedicated direct bank <directbanking.com> which has now been rolled back into the parent.

    One early innovation was a mortgage lead generation tool consisting of an interactive $100-off closing costs coupon. It was still in use several years later when we named it an Online Banking Report Best of the Web winner in 1997 (see circa 1997 screenshot above, and the Online Banking Report article archived here).

    It was "interactive" because in order to print it, the customer was required to first enter  their name and phone number into the on-screen coupon. It was a great promotional idea, especially for 1995. And I still remember receiving a phone call the Saturday morning after I tested the coupon from the cheery Boston-based loan agent, wondering if I was moving to their area and interested in a mortgage. To this day, one of the best follow-ups I've experienced to an online lead.

    Mobile Banking Launch
    In April, Salem Five took another pioneering step, becoming one of the first community banks pushing mobile banking (here). However, its mShift-powered service is a WAP solution, not likely to be widely adopted in its current form. Last week another mShift client, Cardinal Bank, launched a similar mobile offering (here). 

    The bank is making sure its customers know about it with a page-dominating banner in heavy rotation on its homepage. Note: Salem Five uses both "wireless" and "mobile" to describe the service.

    Salem Five homepage (8 May 2007)

    Salem Five homepage with wireless mobile banking banner

    Salem Five mobile banking landing page

    Salem Five mobile banking page

    For more information on mobile banking see our full report at our sister publication, Online Banking Report (here).

    Comments (1)

    Future Friday: Verity Credit Union's Earth Day Tie-in

    By Jim Bruene on April 20, 2007 5:05 PM | Comments

    It's quite likely that energy consumption and environmental issues will grow in importance over the remainder of this decade and well into the next one. Financial institutions can play a positive role in promoting environmental causes both by their actions, such as Vancity's pledge to be carbon neutral by 2010, and by offering products that reduce paper consumption, such as eStatements and electronic payments (note 1). 

    Seattle's Verity Credit Union <veritycu.com> demonstrates another approach: offering an environmentally friendly premium for home equity applicants. The free compact fluorescent light bulbs are relatively low-cost but have a lasting value to the customer. Finally, the credit union wraps it all up neatly with a tie-in to the upcoming Earth Day (see homepage screenshot below and note 2).

    Verity Credit Union homepage

    Notes:

    1. Because saving paper also saves the bank money, be just a bit careful that you don't come off as overly self-serving when promoting estatement options. Passing on some of the savings to the end-user and/or donating a portion of the savings to a good cause, could ease any criticism you might get.

    2. The Earth Day promotion was one of five promotions offered in the main ad box, accessed via a Seattle IP address at 4 PM April 20, 2007.   

    Comments

    Kroger Stocks Aisle 1 with Mortgages, Puts Pet Insurance on a Hang-Tag by the Dog Food

    By Jim Bruene on April 4, 2007 5:50 PM | Comments (1)

    Kroger Personal Finance logo I never understood the fight against Wal-Mart's limited-purpose banking charter. I say let it "enjoy" all the benefits of being a bank: CRA statements, regulatory audits, compliance committees, and endless questions about trigger terms and the alphabet soup of regulations. Maybe a banking charter would have distracted it from going ahead and providing pretty much the same thing, but as a non-regulated retail partner instead of a bank.   

    Take Kroger for example. They are entering the financial services arena through their retail grocery stores with a menu of financial products outsourced from other companies (link here; also see note 1 and screenshot below).

    According to a story Monday in the Lexington (KY) Herald-Leader (here), the grocer began quietly rolling out the services to its 2400 stores in February. Most of the  services are sourced through various Royal Bank of Scotland units.

    Other than deposits, it's a full-service offering including:

    • Credit card issued by RBS National Bank (a unit of Royal Bank)
    • Mortgages through a joint venture with CCO Mortgage (a unit of Royal Bank)
    • Home equity loans through Charter Bank (a unit of Royal Bank)
    • Gift cards issued by Charter Bank
    • Pet insurance through PetFirst Healthcare
    • Identity theft services through Trilegiant's PrivacyGuard

    Kroger Personal Finance product line

    Analysis
    Kroger's product offering seems reasonable and no doubt will have good visibility in the company's stores. But few of these items are impulse buys and much of the success will hinge on whether the Royal Bank phone sales agents can close the deals. The item that has the best chance of earning its keep: pet insurance, a surprisingly popular search term (see Online Banking Report, #95) and one that can be cross-sold effectively with other pet items

    Will Kroger Personal Finance be be a success? With low fixed costs, it might turn a nice profit, but probably not nearly as much as the rent that bank clients pay for in-store branches (a core Wal-Mart strategy). But will it impact the industry? Highly unlikely.

    I'm sure Wal-Mart will be following this rollout closely. If they find it's working at Kroger, you can bet they'll be doing the same thing within a few years, and probably at much lower prices. So, if you think you've dodged the Wal-Mart Bank bullet, think again. 

    Note:

    1. The homepage of Kroger's personal finance site <krogerpersonalfinance.com>, is dominated by a pitch for its MasterCard rewards card. The only link so far to the broader offering is the "new products" link hidden on the right leading to the following page <krogerpersonalfinance.com/Max/KPFhome.htm>.

    Comments (1)

    First Peek: CommunityLend, Canada's P2P Lending Startup

    By Jim Bruene on March 21, 2007 4:14 PM | Comments (5)

    CommunityLend banner

    Since publishing the first third-party research on so-called person-to-person, or social, lending, last year (link to report here), we've heard from entrepreneurs around the globe looking to replicate the model in their country. Most are still operating in stealth mode, but one has recently lifted the veil just a bit, with a placeholder website and email announcement list (see screenshot below). It's called CommunityLend, <communitylend.com> and it's targeting the Canadian market.

    There's not much detail on CommunityLend site, but the startup already has 50+ Google links, many stemming from a brief mention in a March 9 Finextra article (here). The Founder and President is Michel Garrity, previously VP Marketing & Sales at ePost. Others on the team, at least in advisory roles, are ex-Bank of Montreal exec and BankWatch blogger Colin Henderson and John Philip Green (profile here), currently Director of Engineering at Affinity Labs and Co-Founder of of Savvica and Rapleaf.  Development efforts are spearheaded by a Toronto-based Ruby on Rails shop, Unspace.

    It looks like an innovative group and it will be interesting to see how they approach the social lending market. We'll keep you posted as the company moves towards its fall 2007 launch goal.   

    Contact: info@communitylend.com

    Comments (5)

    Social Lending Pioneer Zopa Celebrates Second Birthday

    By Jim Bruene on March 7, 2007 5:09 PM | Comments

    The nascent market of online social or person-to-person (P2P) lending turned two as its pioneer, UK-based Zopa, celebrated its second birthday today. In addition to slapping a this enormous "2" button on its homepage (see screenshot below), the company marked the occasion with an open house at its headquarters, an online lunch-time webcast, and an online giveaway of ten iPod shuffles (see the text of the email message sent to Zopa lenders and borrowers here).

    Zopa's homepage on its second birthday (7 March 2007)

    The Latest Numbers out of Zopa

    According to Easier Finance (thanks to PaymentsNews for the link):

    • Zopa has 135,000 members
    • Zopa lenders have received on average 6.75% before-tax annual return after fees and defaults
    • Zopa borrowers have obtained loans at rates as low as 4.2% APR
    • The current default rate is only 20 basis points, 0.2%

    Zopa continues to create a considerable buzz in the UK. The company's homepage links to 42 articles from a diverse range of publications, most recently The Sunday Times and The Daily Mirror. And my favorite, an awesome piece from the UK's public-service Channel 4, that is unlike anything I've ever seen on U.S. news (click the play button below). 

    The YouTube replay of the 4-minute feature was posted to Zopa's blog March 1 along with TV clips from CNBC and Fresno, CA news. The Channel 4 piece covers the topic of "social lending" in general and primarily covers Zopa, but near the end, another UK alternative lender is interviewed, Fair Finance <fairfinance.co.uk> is interviewed. We'll look at Fair Finance in a separate post.

     

    Comments

    Prosper Raises Prices, Adds Features on First Anniversary

    By Jim Bruene on February 12, 2007 10:41 AM | Comments

    Link to Prosper At its first annual user meeting, which kicked off today in San Francisco, Prosper unveiled a number of changes to its person-to-person lending exchange. The most interesting is that the site is no longer taking loan listings from all comers. They have eliminated the New Credit (NC) category and now require a minimum FICO score of 520 to participate (see email announcement below).

    Neither change will affect loan-origination volume in a measurable way, since few of those loans were funded by investors. However, it does eliminate one of the feel-good aspects of the site, the ability for anyone to use it to start, or re-start, their credit history.

    Price increase
    New Prosper pricing grid But Prosper is first and foremost a for-profit business, so the policy change is not surprising. In the same vein, the company announced a price increase for riskier credits, doubling the loan-origination fee to 2% on high-risk (E & HR) loans, and doubling the annual servicing fee to 1% of the outstanding balance on on all but A and AA loans. Late payment fees also tripled from $5 to $15 each month. Finally, Group Leader rewards have increased up to four-fold, which will have the effect of raising rates for many borrowers.

    Lender enhancements
    Prosper also added several enhancements to assist lenders in evaluation loans, including:

    • 100% identity-theft protection providing full refunds for fraudulent loan applications
    • ROI estimator, a tool that uses historical Prosper data to project return on investment
    • Public borrower Q&A: Like eBay, lenders can now ask borrowers specific questions, and the borrower can opt to answer the question with a public response to be displayed within the loan listing
    • Additional credit report data: Six new fields are now available to lenders, making 12 credit bureau-sourced data points for each loan listing (see screenshot below). This is a huge change from a year ago, when only the letter grade was available to make lending decisions (Prosper's full explanation of credit data available is here). 

    Credit data available to lenders at Prosper


    Borrower enhancements
    Prosper borrower info boxAlthough attracting lenders is the key to the company's survival, Prosper added a new feature to help borrowers make their loan listing more believable, member endorsements. Now, any Prosper member, including the Group Leader, can add an endorsement or testimonial to a loan listing (see Group Leader endorsement below; the full loan listing is reprinted in the Notes section).

    Borrowers can also show a list of "Prosper friends" to further enhance their credibility. The friends' network shows in the upper-right info box (see inset).

    Prosper borrower endorsement box

    Notes:Prosper example loan listing with endorsement CLICK TO ENLARGE

    • For a more detailed look at Prosper and person-to-person lending, refer to Online Banking Report #127.
    • Previous NetBanker coverage is here.
    • Full loan listing shows endorsement (at right, click to enlarge).
    • Feb. 12 email announces the changes (see Lender section above, click on image to enlarge). 
       
    Comments
    Categories: Loans & Credit, Prosper

    More Supply than Demand at Zopa

    By Jim Bruene on December 15, 2006 2:41 PM | Comments

    link to Zopa homepage In a blog post today, person-to-person lender Zopa told its U.K. lenders that, due to a seasonal "lack of creditworthy borrowers," it would take a bit longer to lend out their money this month. However, the company predicted a seasonal upturn in January as more good borrowers looked for funds. The company reminded lenders that they still earn 4.25% on idle funds held by Zopa.

    Comments
    Categories: Loans & Credit, Prosper, Zopa

    Vehicle Auctions Hit the Homepage at Houston Federal Credit Union (HFCU)

    By Jim Bruene on December 6, 2006 2:58 PM | Comments

    Many financial institutions sell or auction repossessed vehicles to the public. However, not many use this by-product of installment lending as a prospecting tool on their homepage.

    We came across this novel approach at Houston Federal Credit Union <houstonfcu.org> while putting together a presentation titled "Extreme Website Makeovers" for an upcoming American Bankers Associate conference. The first place we looked for inspiration was the client list of Trabian, a talented new website designer concentrating on the credit union market (grab a feed to their outstanding blog, OpenSourceCU here). 

    Trabian's client, HFCU, includes a link to its vehicle auctions on the right-side of its homepage (see screenshot below). Clicking on the box takes users to the main auction page where any registered user may bid on the vehicle (in this case, just a single motorcycle was up for auction).   

    Houston Federal Credit Union homepage CLICK TO ENLARGE

    Analysis
    Everyone loves a good deal, and unlike retailers who can drop a loss-leader on their homepage to generate excitement, financial institutions have far fewer options. Vehicle auctions provide an interesting way to encourage members to check back periodically to see if they could get a smoking hot deal on a used sedan, truck, or bass boat.

    It's also a good prospecting tool. Nonmembers are allowed to register on the site and bid. This provides the credit union an immediate opportunity to make a sales pitch such as the "Wish your auto loan was at HFCU instead?" in the center of the page.

    The email address supplied by the bidder also enables the CU to market to the nonmember in future emails. Finally, anyone who buys the auctioned vehicle is a great candidate for an HFCU loan, which are positioned in the upper-right of the auction page (see screenshot below).

    Houston Federal Credit Union auction page CLICK TO ENLARGE

    Making it even better
    We love the idea, and it works well even in its relatively simple form. It would be even better with a few additions:

    1. It would drive even more traffic with an email and RSS feed option for receiving information on new auction items and for monitoring bids.
    2. The credit union would generate more interest by including a variety of vehicles (even if they bought a few at auction to seed the site). Today's sole entry was a 2005 Suzuki motorcycle with a buy-it-now price of $6300.
    3. The auction format and tools are relatively crude by today's standards. For example, it wasn't obvious who the other bidders were, how long it had been up for auction, or what the next bid needed to be. There are numerous auction services that could provide a more eBay-like experience.
    4. It would be helpful to integrate the auction more closely with the loan center so users could easily calculate monthly payments, insurance costs, etc.
    Comments

    Zopa to Offer Lender Guarantees

    By Jim Bruene on November 23, 2006 10:05 AM | Comments

    Click for Zopa home pageIn a blog post today, person-to-person lending pioneer Zopa announced several usability improvements in its upcoming release, a new My Zopa screen and Quick Lend area.

    But what caught our eye was Zopa's upcoming option to guarantee the return of principal for its lenders. There's no free lunch, of course, so an insurance premium must be paid when lenders choose this option. Even though that will cause returns to fall to a more "normal" rate, it could be a psychological boost that brings in more funds. At minimum, it will generate press coverage.

    The new guarantee is still awaiting U.K. regulatory approval. We'll look at it in more detail when it becomes available. 

    Comments
    Categories: Loans & Credit, Prosper, Zopa

    Online Lending Still an Afterthought

    By Jim Bruene on November 16, 2006 2:42 PM | Comments

    BAI's Retail Delivery Conference continues to offer an excellent array of speakers on almost every delivery topic, from the "branch experience" to "optimizing multi-channel delivery." But one area that's barely covered is loan originations. 

    Only one session, out of 36 total, dealt with lending issues this year. And it was a last-minute replacement, not even in the program guide, substituting for NetBank and UPS's Banking on Brown, scrubbed after the announcement last week that the effort was being shuttered (see our coverage here).

    Cornerstone Advisor's Steve Williams presented Consumer Lending: It's Not Just a Transaction Anymore. Although lightly attended, due to its placement at the closing moments of the show, he discussed a number of great ideas for improving loan originations, both online and in other channels. We'll look at some of them in more detail in coming weeks.

    The presentation is available via email from swilliams@crnrstone.com

    Comments

    Prosper Books its 4,000th Loan

    By Jim Bruene on October 31, 2006 10:53 AM | Comments

    Nine-month old Prosper announced its results to date (press release here):

    $20 million in loans originated
    4,000 loans booked ($5,000 average)
    100,000 registered users

    It's a good start for the person-to-person lender, running about 25% to 30% ahead of our projections made when the company launched (see Online Banking Report #127).

    However, they are a long way away from profitability, booking just $200,000 in loan fees during the first nine months, plus less than $50,000 in servicing fees and some pocket change in late fees, which are shared with lenders.

    The company may need to consider hosting advertisements to prop up the bottom line. With high CPMs in the loan and personal finance market, Prosper could potentially make more on advertising than it does on the loan originations.   

    Comments
    Categories: Loans & Credit, Prosper

    Prosper Launches Group Ratings, Schedules User Meeting

    By Jim Bruene on October 23, 2006 10:44 PM | Comments

    Person-to-person lender, Prosper, announced its first annual user meeting next February in San Francisco. Registration is a refundable $25 and includes an all-day session with dinner on Monday, Feb. 12, and a half-day on Tuesday, Feb. 13.

    The agenda has not been published. Online signup is here.


    The October newsletter (see End Notes for screenshot) also announced the arrival of the group ratings, an important milestone for the nine-month-old service. Group ratings promise to help lenders locate borrowers with better-than-expected likelihood of repayment. If it works, Prosper could become a major force in consumer lending. If it doesn't, the company will have to find another way to beat the loan default odds. 

    For more information:

    • For prior coverage of Prosper and its U.K. rival Zopa, look here.
    • For detailed analysis of the market, see Online Banking Report #127 published in March

    End Notes (click on the link below to see Prosper's Oct. newsletters)

    Banner advertising at About.com's banking blog <bank.about.com>

    Bofa_ads_aboutdotcom

    Landing page for direct navigation to <bankofamerica.com/nofeemortgage>

    Bofa_nofeemortgage_url

    Landing page from bank's Google ad on "bank of america mortgage no fee"

    Bofa_mtg_landing

    Comments

    U.S. Bank Adds Payday Loans to Online Banking

    By Jim Bruene on October 11, 2006 1:04 PM | Comments

    Here's something we hadn't expected, payday loans from a major bank delivered through its online banking program. Minneapolis, MN-based U.S. Bank, not known for its pioneering work in online banking, quietly added payday lending to its platform recently.*

    How it works
    Users are alerted to the feature through a green link at the top of their checking-account transaction detail (see below).

    DDA trans detail CLICK TO ENLARGE

    Clicking on the link returns the well-designed "advance" pop-up screen where users can elect to take an advance from their next paycheck or from one of their pre-existing credit accounts (see below).

    After selecting payday advance, users choose the amount and then follow the instructions to complete the loan. Funds are moved in real-time with no credit check. Since we don't have a direct-deposit paycheck, we didn't expect to qualify for an advance. However, we did receive a token "advance limit" of $80 (see "Available Credit" in lower-right box below).

    Pricing & Disclosures
    The advances are priced at 10% of the advanced amount, with a $20 minimum advance. Advances are automatically deducted from the checking account in one month if not already repaid. The APR if the amount is outstanding for the full month is 120%. Only one advance can be outstanding at a time.

    In our example below, we chose a $20 advance and were required to repay $22.

    The program is well-disclosed with a lengthy FAQ and Disclosure Statement (click on the continuation link at the bottom to see these documents).

    Analysis
    Putting an advance button at the top of checking-account transaction data is a great idea. However, at least in our case, the bank's implementation was questionable. Although we maintain as low a balance as possible in this checking account, we often run $10,000 or more through it. Also, we have an open credit limit of $20,000 on a U.S. Bank credit card linked to this account. Offering us an $80 advance limit is ridiculous.

    Also, we're not sure that online payday lending is strategically very smart. Why charge 120% APR on small advances of one-month duration, risking customer and press backlash, when you could instead upsell an overdraft line of credit with a reasonable APR? 

    The bank would stand to make much more on a reasonably priced overdraft line of credit, which could be delivered nearly as seamlessly. For example, a $2,000 outstanding balance on an 18% line of credit would provide $200 or more of annual profit vs. about $40 for a pair of $200 advances. And the customer will likely be more satisfied with the credit line. 

    Although the bank demonstrates in its disclosures (see notes below) that its program is less expensive than an NSF fee or a typical payday loan, the 120% APR will likely create a bit of a furor with consumer advocates lambasting the bank in the press. It appears to have escaped notice so far.   

    U.S. Bank deserves a pat on the back for its innovation, but without more consumer-friendly pricing, the payday-advance program may backfire on them.

    *We have several accounts at U.S. Bank and noticed it this week for the first time.

    End Notes (click on the following link for more information):

    Program Disclosures

    Usbank_ddaadvance_terms

    Program FAQs

    Usbank_ddaadvance_faq

    Comments

    The Money Store's Comeback Marred by Flawed Website

    By Jim Bruene on October 9, 2006 11:57 AM | Comments

    Flipping through a pile of American Bankers on the plane last night, I came across a page one story on The Money Store <themoneystore.com>. If you've been in the business at least ten years, you probably remember the sub-prime lender that created a household name for itself with heavy TV and print advertising featuring baseball great Jim Palmer and others. But shortly after First Union (now Wachovia) paid $2.1 billion for it in 1998, its sub-prime portfolio tanked and the bank shut it down in 2000.

    Why First Union/Wachovia didn't use the famous Money Store brand for other lending pursuits is a mystery, but I'd wager that after blowing a couple billion dollars on the acquisition, senior management, and shareholders, didn't want to hear that name ever again. 

    Fast forward five years. MLD Mortgage, a NJ-based lender founded by former Money Store Vice Chairman Mortan Dear convinced Wachovia to sell him the Money Store brand name. The brand was then repositioned as an online loan exchange along the lines of LendingTree, brokering mortgages for 50 lenders including Washington Mutual, NetBank, and Flagstar Bank

    Analysis
    The use of the Money Tree name is good, although they absolutely must secure the <moneytree.com> domain name. The online loan-exchange business model is sound, and its lending partners offer good credibility. However, the company's website execution is deplorable.

    The busy home page doesn't even mention the product it sells (see screenshot below). We could write an entire report on what's wrong with the site, but we'll review just one small section here to give you an idea of the problems.   

    At first glance, the "three simple steps" graphic in the upper-left looks promising, although the type should be bolder for readability (see inset).

    As users struggle to understand what the company offers, many will start here due to its location, color, and shape. Unfortunately, most users will become even more confused after reading it due to three significant usability errors:

    Mistake #1: Scaring off potential customers. The goal of a financial website is to make users confident in transacting there. Money Tree does the opposite. The very first thing users see is step 1, "Provide your personal information." In today's paranoid times, that's a huge red flag from a relatively unknown website. Before you cause even a smidge of user-apprehension about the application process, you must make visitors want your product. Try starting with a benefit statement such as "lower your mortgage payment" or similar.

    Mistake #2: Amateur copywriting with no benefit statements. Always use a professional copywriter, even for bullet points. The Money Store is obviously cutting corners here. For instance, the first line above says "price your loan today." That makes almost no sense to a consumer. It's industry jargon. It should be a benefit statement, like "lower your mortgage rate today" or something similar that can be easily grasped. My fifth-grader could have come up with a better opening line.

    Mistake #3: Steps that lead to the wrong product. For the life of me, I can't figure out what the company was thinking with its third step. Here's a synopsis of the three: 
    1. Provide personal info.
    2. Select product
    3. Get your credit score
    Huh? Are they selling credit scores or saying you need to go somewhere else, find your credit report and then finish the process? Either way, they are going to lose just about anyone that's gotten this far.

    Instead, the steps should lead to a recognizable benefit such as:
    1. Tell us what you want
    2. Compare all the great prices we'll provide
    3. Choose the deal that saves you the most money
    4. Enjoy your extra cash!!

    The Money Store homepage (Oct. 9)

    Comments

    Wells Fargo Blog is Off to a Good Start

    By Jim Bruene on September 23, 2006 11:40 AM | Comments

    Wells_blog_homeAfter a slow start, with no new entries during its first week, the student loan blog from Wells Fargo is off and running. Since its Sep. 5 launch, the site has averaged about two posts per week, each running 300 to 400 words, a good length. (See inset for jump page to the bank's two blogs, <blogs.wellsfargo.com>)

    Furthermore, the writing is surprisingly good, with little corporate-speak, a trap that's so easy to fall into when every word has to be approved by a team of attorneys and compliance officers. Interestingly, the one off-topic post, written by the freelancing college-student mom, Caroline Hansen, was pulled from the site a day or two after it was posted. Either her step-daughter, or more likely, Wells Fargo management didn't like the story about her new tattoo.

    The site is obviously aimed at parents, with warnings about credit card abuse and an instructive post about transferring money online to pay for a $573 book tab (ouch!).

    While the bank does a good job of not blatantly pitching its products, it seems that most links within the posts lead to a wellsfargo.com page. The blog would have more credibility, and readership, if it linked to more outside resources.

    Comments

    Automobile Title Insurance has Fee Income Potential

    By Jim Bruene on September 18, 2006 11:12 AM | Comments

    When it comes to generating incremental fee income, it's difficult to find new ideas. One you may not have considered is automobile title insurance.

    Although we've purchased two used cars on eBay, we'd never heard of title insurance for autos until we read about it in the Wall Street Journal today. For a one-time fee of $50 to $60, consumers can buy insurance that protects them against fraudulent titles, including instances where a salvaged auto has had its title wiped clean by registering the vehicle in a state with more liberal salvage rules.

    Firstam_titleguard_logoAccording to First American Corporation, which markets a $49.95 policy in a joint venture with Experian Automotive, 20% of salvaged autos end up with clean titles. The product is called TitleGuard Vehicle Title Insurance and is sold through a stand-alone website <autotitleguard.com> and through resellers such as Credit Union Direct Lending and Escrow.com.

    Financial institution opportunities
    There are two ways financial institutions could use title insurance:

    1. Education: In your auto-loans area, explain the ways that car titles can be manipulated with links to outside informational sources.
    2. Resell title insurance: Title insurance is most needed when purchasing vehicles from unknown private parties. Even if you don't finance such transactions, you could earn commissions on customers referred to third parties for title insurance.
    3. Bundle title insurance with loans: If you offer financing for private transactions, you could bundle title insurance with your loan to help differentiate your product and help justify premium pricing. The title insurance could be mandatory or optional and either way could be priced as a fee-based add-on or included in the regular loan-origination fee.
    Comments

    Zopa Courting U.S. Credit Unions

    By Jim Bruene on September 13, 2006 9:01 AM | Comments

    Zopa_logo_2According to OpenSourceCU, a blog operated by website designer Trabian, person-to-person lender Zopa is actively soliciting credit unions to partner with the U.S. version of its service scheduled to open later this year (see NB Sep 7). One idea floated by Zopa's Wade Lagrone to attendees of the Taps Lending Symposium put on by Forum Solutions, was requiring Zopa borrowers to join a credit union in order to participate.

    Longtail_chartIt's not as far-fetched as it sounds. In our analysis of peer-to-peer lending published in March (see Online Banking Report #127), we identified a number of ways financial institutions could benefit by referring customers to competitive loan marketplaces. It helps you serve the "long tail" of borrowing, those specific situations that your underwriting cannot accommodate, but where you still want to satisfy the customer to retain their other banking business.   

    Comments
    Categories: Loans & Credit, Prosper, Zopa

    Update on Zopa's U.S. Release Date

    By Jim Bruene on September 7, 2006 10:30 AM | Comments

    Zopa_usnewsletter1Zopa <zopa.com> continues to work towards a 2006 launch of the U.S. version of its person-to-person lending exchange. The company is trying to spur a bit of word-of-mouth in advance of its launch by buying a case of beer for anyone sponsoring a Zopa barbecue this summer.

    The company website also contains a newsletter-like posting <www.zopa.com/ZopaWeb/ promo/newsletter/ us/issue1/> with info on the U.S. division (click on inset for closeup).

    Beside promoting the free beer offer, the newsletter profiles Bruce Brenkus, VP Credit and Risk at Zopa U.S., an excellent choice of subject matter since credit management is the biggest concern for prospective Zopa lenders.

    Comments
    Categories: Loans & Credit, Prosper, Zopa

    LendingTree Emphasizes Monthly Payment Amount Instead of Rate

    By Jim Bruene on August 7, 2006 9:55 AM | Comments

    Lendingtree_msn_aug06_1 LendingTree owns MSN’s homepage again <msn.com>, locking up the main page sponsorship today (9am Pacific Time) with a refi pitch in the upper-right corner and an ad for home equity loans in the Money area (see inset).

    In an approach popularized by car dealers, both ads emphasize monthly payment amount rather than rate. This theme is carried through on the landing page which has no mention of rate. In fact, you could complete the entire loan application without ever seeing the rate.

    The only rate link is the relatively faint reverse-type line in the upper-right corner. Clicking on it delivers a small, quarter-page popup with disclosures for all 41 promotional offers currently in use by LendingTree 6,800-words in all across 24 screens (download lendingtree_disclosures.doc).

    Interestingly, both offers lead to the same landing page. While it would probably be more effective to craft different pages for each loan type, LendingTree may prefer a common landing page to more easily compare results from its different promotional ads.

    Lendingtree_msn_landing_aug06

     

     

     

    Comments

    Turning the Tables on the Auto Dealer's Finance Dept.

    By Jim Bruene on July 13, 2006 11:03 AM | Comments

    Capone_driveone_logoTired of competing with 1.9% dealer financing? Fight back with online car buying services. Many financial institutions, especially credit unions, have offered car-buying services online. With 67% of new car buyers researching online last year according to JD Powers, there's ample opportunity to get in front of car buyers BEFORE they arrive at the dealership. However, for the most part, major banks have stayed away from this area, in part so as not to annoy their dealer-financed customers.

    Capone_driveone_homeThat may change as one big player, Capital One, enters the business, albeit with fewer channel-conflict issues. The credit card giant is already a big player in online auto finance and generated 1.5 million auto loan applications across its 44 million customer base last year alone. It recently launched its new DriveOne <driveone.com> service in several markets (click on inset for closeup).

    Capone_driveone_newDriveOne is a slick car-quote service that rivals anything we've seen online. The design is state-of-the-art, easy to navigate, and, with no advertisements, it's much faster than others. The site, powered by Zag <zag.com>, features branded data from Kelly Blue Book <kbb.com>. Furthermore, it's closely tied to the lender, with a slide-bar payment calculator built in to the main user interface (see right-side of screenshot left).

    DriveOne will connect buyers to dealers who must agree to sell vehicles at a fixed price no higher than Kelley New Car Blue Book Value. However, dealers are still free to negotiate add-ons, such as security systems or additional warranties. In addition to the fixed prices, buyers receive a $250 (new cars) or $400 (used car) rebate direct from DriveOne, no matter how they finance the purchase. Dealers indirectly fund this rebate with the fee paid to Zag whenever they sell a car through the program.

    Powered by Zag
    Zag_logo_1The DriveOne platform comes from Zag, a car-buying service launched early last year by Scott Painter, the founder of CarsDirect.com and BuildToOrder.com. The company used seed money from Elon Musk, founder of X.com/PayPal. One of Zag's investors is Capital One, which led the third round in Dec. 2005.

    In Nov. 2005, the company acquired Autoland, the leading auto-buying service bureau for credit unions, with 300 clients serving a total of 8 million members, primarily on the West Coast. Total annual vehicle sales are more than $270 million. The company says it will have approximately 50 of the 300 credit unions using the DriveOne platform by year-end.

    Last month, Zag acquired Automotive Invitational Services that serves 6 million members across a dozen AAA clubs. Zag says it will be offering DriveOne in seven states by the end of this month and will be working with 3,000 dealers by year-end.

    --JB

    Comments

    Live Chat in Online Banking Grabs Some Ink

    By Jim Bruene on July 6, 2006 7:46 AM | Comments

    Citi_myhomeequity_livechatAlthough our readers won't find much new information in today's Wall Street Journal article, Online Banking Strives for the Human Touch, it's significant for two reasons:

    • Another example of a leading personal finance writer looking for "the next big thing" in online banking (see also NetBanker June 28); expect a wave of these stories through year-end
    • The article included a full-text screenshot of a banking chat session with SunTrust. You might circulate this among your reps so they understand that what they write in a chat session potentially becomes part of the "public record" (by the way, the SunTrust rep, and/or the marketing guru who scripted the canned responses, deserve a raise for their sales technique).

    If you make it to the end, you'll find a couple interesting online lending factoids:

    • Bank of America claims an 8-fold increase in online-mortgage sales in Q1 2006 compared to the year earlier quarter, with live-chat part of the reason; it also said home-equity loan volume doubled
    • Citbank says 90% of its live-chat users complete a home-equity application, presumably at its <myhomeequity.com> site mentioned earlier in the story (see screenshot above); the bank also said it expects to originate $2 billion in home equity loans online in 2006, double that in 2005

    --JB

    Comments

    MyRichUncle Discounts Student Loans

    By Jim Bruene on June 15, 2006 4:08 PM | Comments

    Myrichuncle_logo_1If you are looking to boost student-loan volume, you had better postpone that summer vacation. The upcoming July 1st interest-rate boost has created much FUD (fear, uncertainty, and doubt) for borrowers. The reason: existing borrowers have the opportunity to lock in the current rate of 5.3% on Stafford loans or 6.1% on PLUS if they consolidate their loans and refinance prior to July 1. After that, most lenders will raise rates on these loans by almost 2% to the new rate caps of 7.14% and 7.94% respectively.

    Unless you already have resources in place, it's probably too late to participate in the student loan refi boom. However, a high level of activity will continue through July and August as students and their parents look for money to cover that big tuition bill in September.

    Google_studentloan_jun15_06_2

    With the vast majority of college-bound teenagers using search engines, online marketing is a powerful way to find prospects. However, you won't be alone. A Google search today for "student loan" had 87 advertisers bidding on the term (see screenshot above). So it's going to take more than a simple ad buy to break out from the online crowd.

    The top 10 advertisers on Google today for "student loan" (11 am PDT search from Seattle ISP):

    1. NextStudent.com (across top)
    2. loantolearn.com (across top)
    3. AstriveStudentLoans.com (across top)
    4. National City (right)
    5. CollegeLoanSite.com (right)
    6. GMAC Bank Funding (right)
    7. ScholarPoint.com (right)
    8. MyRichUncle (right)
    9. Key Bank Education (right)
    10. EducationFinancePartners.com (right)

    MyRichUncle
    Myrichuncle_homeIf you look through these top advertisers, you'll see a number of innovative techniques for capturing loan applications or leads. One of the big innovators, advertiser #7, MyRichUncle (see screenshot right), has recently earned positive PR by announcing that it will continue to price its Stafford and Plus loans 1% to 1.75% BELOW the new July 1 maximum rates. The company even earned a nice Jane Kim sidebar in today's Wall Street Journal.

    Aside from its pricing and memorable name, MyRichUncle also does a good job of succinctly summarizing the available options and steering borrowers into the correct program. It even offers a Preprime loan option for students without credit histories or co-borrowers.

    --JB

    Continue reading "MyRichUncle Discounts Student Loans" »

    Comments

    Crowdsourcing Finance

    By Jim Bruene on June 13, 2006 10:44 AM | Comments

    CrowdThere's an interesting new buzzword in tech sources, crowdsourcing. You can probably guess the meaning: having users perform tasks that directly assist the business such as creating the core content (eBay, Flickr), editing the content (Wikipedia, Craigslist's "flag this entry"), or adding value to it (blog comments, trackbacks).

    Marketocracy_homeIt's not a concept that lends itself to financial services, or does it? Marketocracy <marketocracy.com> is a website where 55,000 users run their own "mutual funds," beginning with one million in play money provided by the site (click on inset for screenshot). There is nothing particularly unusual about that as many brokerages and websites allow users to create model portfolios to track.

    However, it's what Marketocracy does with these 65,000 user-generated portfolios that makes it innovative. It created a real mutual fund that tracks the portfolios of the 100 most accurate stock pickers in its user base. The Masters 100 Fund (MOFQX) <funds.marketocracy.com> has averaged an 11.65% annual gain since inception (Nov. 5, 2001) vs. 5.76% for the S&P 500.

    Financial institution opportunities
    While turning customers into investment advisers is a bit of a stretch for most traditional financial institutions, there are more mainstream functions that could be outsourced to end users. For example, a community calendar that users could update in real-time (wiki). Or a personal finance forum where customers post questions or describe their financial situation and solicit advice from other bank customers. To make it more credible, the bank could "vouch" for respondents with some type of "reputation" score. Prizes could be offered to the most interesting questions and/or answers to help spur adoption.

    Mastercard_priceless_adHow about having customers design your ads? MasterCard tapped into the popularity of its "priceless" ad campaign with a "create your own priceless ad sweepstakes" earlier this year. The much-parodied ads are so widely followed that MasterCard has a dedicated website where the ads run <priceless.com> (see inset).

    Really heading out of the box, how about creating a lending environment that combines the portfolio-management skills of Marketocracy with the person-to-person lending platform of Prosper? Masked loan applications could be posted online and users could choose which loans to fund and at what rates. Actual loan performance would be tracked over time, and the best virtual "loan officers" would receive recognition and prizes (and maybe a job offer). Taking this one step further, why not let the amateur loan officers put actual skin in the game, participating in the loans that were funded through the online loan market.

    --JB

     

    Comments

    Email: US Bank "Spring Clean Your Finances"

    By Jim Bruene on May 26, 2006 7:18 AM | Comments

    Emailmarketing_logoEvery month we receive dozens of emails from the many financial institutions where we have accounts and also, increasingly, from non-customer mailing lists at others. As part of our expanded coverage of email marketing, we plan to post many of them here. You will be able to access the entire sample collection by clicking on the "Email Archives" subject on the right-hand navigation. Alternatively, individual emails will also be filed within their pertinent product areas, in this example, "Loans & Credit" and "Personal Financial Management."

    Today's message is from US Bank <usbank.com>, which sent the following solid, but fairly boring financial organization email to current customers.   

    Here's a screenshot of what appeared in my inbox. You can also view the clickable version by following this link

    Usbank_email_heq

    On the landing page for the "Credit Card Clean Up" link in the blue-shaded area on the right, US Bank offers a useful calculator to determine the benefit of reducing credit card debt (see below).

    Usbank_email_springcleaninglanding

    If you'd like to learn more about the financial email marketing, check out Email Marketing in Financial Services: Leveraging the Inbox from our sister publication, the Online Banking Report.

    Comments

    Brokers Push Margin Loans

    By Jim Bruene on April 20, 2006 9:13 AM | Comments

    Flipping through the latest issue of SmartMoney magazine, it came as no surprise to see a full-page advertisement from Fidelity. But what caught my eye was the subject matter. Margin loans.

    And this was no soft-sell pitch with smiling 50-somethings sipping Chardonnay on their deck. It was all business, showing how Fidelity's margin-lending rates fared against those of its major competitors. The hard-hitting approach isn't carried through to its website though, which opts not to show any comparative data.

    E*Trade, one of the best financial marketers, is said to be offering teaser rates as low as 3.99% to encourage investment clients to transfer higher-rate debt to their margin accounts (WSJ, 4/20/06). However, its published rates vary from 6.74% to 9.74%. The retail banking sweet spot, loans of $50,000 to $250,000, are priced at 8.74%.

    Fidelity_marginratesFidelity doesn't go quite that low. Rates vary considerably depending on the balance, but under $500,000, borrowers pay 8.5% to 10.5%. Only those borrowing more than $500,000 pay an ultra-low rate of 5.5% (see inset for current rates).

    Analysis
    What's going on here? Brokerage firms are finding that customers are willing to borrow against their securities to finance all types of non-investment purchases. UBS AG's wealth management unit says that 75% of its $10 billion in margin-loan outstanding has been used to purchase things other than securities.

    Expect more competition from brokerage firms as empty nesters and younger retirees finance portions of their lifestyles with loans against their investments. Deferring tax liability on portfolio gains is a big part of the decision to borrow. But there's also the psychological aversion to seeing investment balances decline.

    Financial institution loan officers should be well versed on the risks of margin loans, and instead offer home-equity loans and cash-out refinances with similar rates and no risk of a potentially disastrous margin call.

    --JB

    Comments

    Peer-to-Peer Loans from Zopa and Prosper

    By Jim Bruene on April 4, 2006 10:08 AM | Comments

    Circlelending_logoA few weeks ago we published our first report on so-called person-to-person lending (see OBR #127). Two companies have created P2P lending exchanges, Prosper in the U.S. and Zopa in the U.K. (see NetBanker Feb. 25). While we like the concept, these exchanges have a number of hurdles to overcome. One of the challenging issues is how to convince individuals to loan money to strangers.

    Most P2P lending is between family and friends. And that won't change no matter how big the loan marketplaces becomes. Government reports peg the interpersonal loan market at $80 to $90 billion.

    Circlelending_process_2One of the stickiest issues in friends-and-family lending is keeping the borrower current on their agreed-upon repayment schedule. It's easy for kids to "forget" that loan payment to mom and dad; likewise, parents don't want to put a damper on Sunday dinner with a discussion of junior's financial situation.

    Financial institutions could play a role in automating personal loan repayments, by putting the repayment transactions on autopilot. It can already be done through bill payment systems that support automated recurring payments. But users still need to do their own research to come up with the correct amortization schedule.

    How it would work
    With a little programming, a bank could develop a module that allows lenders to set up a repayment plan by entering the loan details (amount, interest rate including zero, and term) and borrower info (name, email address). An email would go to the borrower asking them to agree to the terms, authorize the deduction from their bank account, and provide bank account details. The borrower would also be required to authenticate their access to the account through username/password or by correctly identifying small deposits made to their account.

    The lender or borrower (if authorized) should be able to log in at any time and suspend or alter the automatic deductions.

    The business case
    Borrowers and/or lenders could be charged a set-up fee for each loan, plus small transaction fees each month. For example, a $75 set-up fee plus $3 per payment. Pricing could be tiered by loan size.

    If 2% of your online banking base eventually used the service, it could generate $1,000 to $1,200 in annual revenues per 1,000 online banking users (assuming average loan term of three years). For Bank of America, that's $15 to $20 million per year. But for a community bank or mid-size credit union, it might generate only a few thousand dollars annually.

    Unless you are large, that's not enough to justify programming it yourself; however, if a software company made it available for a reasonable fee, it might make a good new feature for online banking. As the industry matures, banks will need to add value to their services to attract more users. Also, the long-term nature of loan repayments, especially with family lending, could help tie both the lender and borrow to your bank for years.

    Service providers
    Circlelending_homeThere is already one company that's been facilitating person-to-person loans for more than four years: CircleLending.com, a company we first learned about in a favorable Wall Street Journal article published in 2002. The company has taken the concept to a high level, facilitating not just personal unsecured loans, but also owner-financed real estate, commercial loans, and other complex secured funding (click on screenshot right for details). It charges $199 plus $9 per payment for simple loans, up to $1000 or more for mortgages.

    Paltrust_appAnother newcomer, PalTrust, is an apparently small startup that has a two-page website, <paltrust.com> with a mockup of its personal lending application. The patent-pending process looks much like PayPal (click on screenshot for a closeup).

    --JB

    Comments
    Categories: Loans & Credit, Prosper, Zopa

    LoanTrust is Surprise Google Financial Advertiser

    By Jim Bruene on March 24, 2006 10:41 AM | Comments

    The online loan-referral market must still be healthy. How else can you explain how an unknown company, providing not a single clue as to whom might run it, can afford to be within the top-three advertisers on Google searches today for "refinance" and "home equity."

    Google_homequity_searchThese search terms, each used millions of times each month (NetBanker Sep. 20, 2005), currently have three ads across the top of the Google search results. In both cases, previously unknown referral agent, LoanTrust.org, is a top sponsor. For "home equity," it's in the company of two well-known brands, Ditech and LendingTree (click on inset for a closeup). 

    Loantrust_homepage Clicking through the LoanTrust ad drops users onto a professional looking site that name-drops ING, Geico, and Equifax to build credibility (click on screenshot right for a closeup). But anyone peeking under the covers should be concerned about where their personal information will end up. For example, the short About Us section includes this grammar-challenged sentence:

    LoanTrust, is dedicated to operating in an ethical conduct in all its activities.

    Also, many of the "services" offered simply dump users into other websites, earning LoanTrust commissions on the traffic.

    Analysis
    We have nothing against this company: they are probably a well-meaning outfit cutting corners on copy editing (we've been guilty ourselves). The point is: why are they able to snag a top-spot on Google? Shouldn't large, established lenders be able to squeeze better returns from the $100 CPM keyword buys on Google?

    Apparently, the answer is no. And that's because the big players often don't execute well on their landing pages. Rather than give rate searchers what they want, access to multiple rate quotes to ensure a fair price, large financial institutions tend to dump surfers right into their loan application and expect their brand image to win the day. It's usually not that easy.

    Read more in OBR 124 and 126, Online Lending v5.0.

    --JB

    Comments

    OBR #127 Now Available for Download

    By Jim Bruene on March 15, 2006 2:05 PM | Comments

    Obr_iconThe latest Online Banking Report, Person-to-Person Lending: Does the eBay model lend itself to consumer credit (OBR #127) is now available for download. The 36-pages take a close look at the recently launched Prosper Marketplace (NB Feb. 6, 2005) and the market for person-to-person lending in general.

    Online Banking Report and All-Access Subscribers will receive the printed report next week.

    --JB

     

    Comments
    Categories: Loans & Credit

    Interview with P2P Lender Prosper's Chris Larsen

    By Jim Bruene on February 25, 2006 12:06 AM | Comments

    Prosper_homepage_chart_1Chris Larsen, who helped invent financial e-commerce by creating E-Loan <eloan.com> in 1997, is back on the scene mere months after selling the company to Popular Inc. last summer for $300 million. His new company, Prosper.com, first discussed here on Feb. 6, is built around the idea of creating communities of people who lend to and borrow from each other. The idea, he says, isn’t too far away from Jimmy Stewart’s savings and loan in Frank Capra’s film, It’s a Wonderful Life, where ordinary people lent to each other and made them all more prosperous.

    The business premise is comparable to the model of Zopa, the UK-based, person-to-person lending site that opened last summer (see NB Nov. 22) with funding from Benchmark's European unit. But while Larsen concedes the similarity, he says he had the idea first. “This is something Bob [Kagle] and I talked about long before the Zopa guys had come to Benchmark [Europe] —since 2003, in fact,” he says.

    Robert Kagle is a Benchmark Capital partner who provided much of the original financing for E-Loan, and who served as an E-Loan director. The Prosper idea attracted them, adds Larsen, because while the E-Loan idea worked relatively well—it originated and sold $26.7 billion in mortgages between 1997 and June 2005—it wasn’t really what they’d wanted to do, which was more along the lines of Prosper.

    Larsen says, “[At E-loan] we were beholden to the capital markets, rather than being able to create a whole new marketplace that’s supported just by people. This is more of a pure model, an opportunity to start from a clean sheet of paper and design something from the ground up.” Plus, he adds, the public that could support a Prosper didn’t exist in 1997. “You couldn’t do [Prosper] back then. PayPal very much blazed a trail, and you really couldn’t do this until they had come along.”

    The company
    Prosper is funded by venture capital funds that include Accel Partners, Benchmark Capital, Fidelity Ventures, and the Omidyar Network. Prosper opened with something of a bang the week of Feb. 6, getting plenty of high-profile press in the mainstream media, and, according to Larsen, attracting more than $750,000 to its loan pools in the first week of business. And the first week’s business seems promising: As of Feb. 24, 301 loans were up for auction, up from 168 a week earlier. Loan sizes range from $1,000 to $25,000.

    How it works
    Prospective borrowers are first given a credit rating by Prosper after being vetted by credit score, a fraud check, and income. The borrower then lists the reason for their loan, uploads pictures if desired, and selects a starting interest rate, essentially the highest rate they would accept.

    Individual lenders, who go through their own authentication process before being allowed to participate, can bid for as little as $50 of any particular loan, specifying the minimum rate they will accept. Prosper charges the borrower a 1 percent loan-origination fee and levies a 0.50 percent annual servicing fee to the lender on the outstanding balance.

    Analysis
    One of the problems faced by the venture is adverse selection, the tendency for loan applications to be dominated by those most in need of credit and least likely to repay. If poor credit risks overrun the venture, higher quality applicants, and the investors looking for them, will desert both Prosper and Zopa.

    Another question is whether lenders will feel adequately compensated for their risks. Larsen says he wants his lenders to “capture the 10 percent spreads between short-term money and credit card deposits,” and compares the expected returns at Prosper to the AA corporate credit market, which currently gives investors a 7 percent return, or 6.5 percent after defaults. Zopa says it has provided lenders a 7 percent average return with no defaults in the seven months it’s been open for business, but this is not a period statistically significant enough to predict future performance.

    On the other hand, much of business is betting on horses, and on jockeys, and Larsen has proven himself adept at both picking horses and riding them. It may be that the time is right for a business built more along the lines of Jimmy Stewart’s small town savings and loan, and less along the lines of a modern bank's unyielding underwriting algorithms. (Contact: Prosper.com, Chris Larsen, 415-362-7272)

    --AR

    Previous articles:
    -- Prosper Feb. 6
    -- Zopa Nov. 22

    Comments
    Categories: Loans & Credit, Prosper, Zopa

    Bank of America's Preapproved Card Offer at Logoff

    By Jim Bruene on February 23, 2006 9:39 PM | Comments

    Bofa_instantcredit_atolblogoutBank of America is making it super easy for online banking customers to accept a new business platinum credit card. The preapproved offer is displayed after logging out from an online banking session. In this example, we had just finished paying our Bank of America credit card bill and were greeted with well-crafted page shown here (click on inset left for a closer view).

    Analysis
    Using the log-off screen is a great way to get your preapproved offers in front of users at just the time they are thinking about their finances. We also recommend offering a link to the offer within the online banking area. That way, if a user is running a bit low on cash, for example, while paying bills, he or she could click on the offer to obtain additional cash.

    --JB

    Comments

    CashAdvance.com's Audio-Visual Loan Application

    By Jim Bruene on February 22, 2006 10:32 AM | Comments

    Cashadvance_avhelperNot knowing what to expect, I clicked on CashAdvance's <cashadvance.com> banner on eBay last night. The well-designed banner and intriguing name successfully caught my eye. It turns out that CashAdvance is the LendingTree of payday lending, referring online applicants to its lending clients, who advance $100 to $500 against next week's paycheck. You find payday lenders all over the country, especially in strip malls and lower-income urban areas, but they are relatively new online. According to its website, CashAdvance.com was established in 1997 and has served more than a million customers.

    While the product is straightforward and not a particularly good value for mainstream banking customers, financial institutions can learn a lot from how CashAdvance's loan application is presented. While many banks and credit unions bury their application several layers deep in their website and/or post small "apply now" buttons, CashAdvance uses its spokesmodel Jade (see inset) to reassure visitors and explain the application to them in plain language and a calm voice. With broadband connections used by more than half of U.S. Internet users, it's high time that financial institutions make better use of audio and video for customer service and sales assistance.

    Cashadvance_homepage CashAdvance's understated and well-crafted homepage uses Flash animation to deliver an audio pitch from Jade along with several benefits of its product (click on inset right for a closer look). Other than the fine print along the bottom, there are just 30 to 40 words on the entire page. While that won't work for a full-service financial institution's homepage, it's a good approach for a lender's landing page.

    Cashadvance_calltoactionAfter the 30-second animation has run its course, an Apply Now button is left in the middle of the page (see left), along with Jade fidgeting slightly, making you feel like you should do something. A prominent Live Help button is available during daytime hours. Users also have the option of turning the animation off with a small button underneath the graphic.

    --JB

    Comments

    P2P Lending Rates a NYT Article

    By Jim Bruene on February 6, 2006 10:58 AM | Comments

    Prosper_logoWhile person-to-person (P2P) lending will never create the buzz or user base of eBay's PayPal or Google's GBuy, it passed a milestone yesterday with a favorable article in The New York Times. The short article looked at UK-based Zopa <zopa.com>, a recent OBR Best of the Web winner (NetBanker Dec. 1) and a similar service being hatched in Silicon Valley, Prosper <prosper.com> (formerly CircleOne).

    Prosper_homepageProsper, like many Internet startups before it, bears watching not only because of its relatively minuscule user basecurrently, just 12 transactions are pendingbut also because of its VC backers, Benchmark Capital, Accel Partners, Benchmark Capital, Fidelity Ventures, and Omidyar Network, along with its famous founder Chris Larsen, who launched E-Loan nearly a decade ago. The company has raised $20 million according to its website. Click on the screenshot, right, for a closeup of its homepage.

    We'll look at both companies in more detail in the next Online Banking Report (Number 127), due out at the end of the month.

    --JB

    Comments

    Niche Lending Online: Health Care

    By Jim Bruene on February 5, 2006 11:26 AM | Comments

    Ten years after the first loan was originated online, there is still a surprising lack of effort at mining various lending niches. Mainstream categories, such as mortgages and credit cards, are rife with great marketing efforts. Home equity and car loans are also marketed effectively by a number of players.

    But when it comes to smaller niche markets, such as small business or personal loans, the big players have for the most part stayed away.

    Capitalone_healthcare_mainpage_2One exception is Capital One, which recently added a new category to its main navigation bar, "Healthcare Finance (click on inset for closeup).

    Healthcare Finance offers personal loans to consumers seeking to pay for the following categories:

    • Dental
    • Orthodontics
    • Cosmetic
    • Fertility
    • Vision

    The website features a 1.9% banner ad, but the fine print says that the rate will vary from 1.9 percent to 23.9 percent, quite a range. Loan sizes vary from $300 to $25,000.

    Capitalone_googlead_healthcare_1Capital One is using Google Adwords to support its efforts. For example, searching for "loans for dental work" displays this ad (click on inset).

    Action Item
    Compared to other loan terms, the health care-related terms are relatively sparsely sponsored. You should consider adding these terms to your search-engine marketing plan. To make it pay off, you should build a landing page that speaks to the benefits of using your personal loan or line of credit for such expenditures.

    More info: We'll take a closer look at Capital One's Healthcare Finance options in the next Online Banking Report to be published at the end of February (OBR 127).

    --JB

    Comments

    LendingTree promotion on MSN

    By Jim Bruene on January 24, 2006 5:15 PM | Comments

    Lendingtree_on_msn_jan06

    LendingTree has a prime spot on MSN's main page today <msn.com>. The eye-catching burgundy ad in the upper-right corner features a 10-second animation ending with the call to action, "Refinance $175,000 now for $729/month." (click on above for closeup).

    Lendingtree_on_msn_jan06_landingClicking through the advertisement leads to a five-question landing page designed to get the prospect engaged in a loan application (click on inset for a closeup). A small link near the top of the landing page takes visitors to a promotional offerings page with disclosures for several loan offers.

    It's simple and effective online marketing. The slogan on the top of the landing page says it all:

    1 Simple Form, Four Real Offers in Minutes.
    --JB
    Comments

    Third Federal Savings & Loan Lifetime Mortgage Approval

    By Jim Bruene on January 23, 2006 4:02 PM | Comments (2)

    Thirdfederal_mtgpassport_cardOhio's Third Federal Savings & Loan <thirdfederal.com> Mortgage Passport program might be the best relationship program we've ever seen. The free program promises a lifetime of preapproved mortgages and/or refinances, subject to a few simple rules:

    -- Thirdfederal_mtgpassport_logo Owner-occupied housing within the bank's lending area (all of Ohio and parts of Kentucky and Florida)
    -- Maximum LTV of 85 percent for loans less than $650,000; 60 percent for loans higher than $650,000
    -- Have never declared bankruptcy or been foreclosed on

    Features

    • Mortgage is preapproved: Members are guaranteed a mortgage loan provided they meet down payment/equity requirements (15 percent for up to $650,000, 40 percent for higher) and have not filed for bankruptcy or been foreclosed on.
    • Lifetime membership: The preapproval is good for the lifetime of the member provided the above criteria are met; future credit score and income does not matter.
    • Reward programs: Members are automatically enrolled in Passport Rewards which promises prizes and "special gifts" throughout the year.
    • No program application required: Membership in the Mortgage Passport is by invitation only (preapproved) based on credit history; users receive an ID in their preapproval package that is entered into the bank's website (application is still required for a new mortgage/refinance); mortgage site powered by privately held Mortgagebot LLC.
    • No maximum debt-to-income ratio: Provided the above equity measures are met, the bank lets the home buyer determine the house payment they can afford.
    • Downloadable, preapproval letter: Members can download and print a mortgage preapproval letter at any time to use when house shopping; no preplanning is required before hitting the open houses; and members can choose the loan amount to be cited in the letter.

    Analysis
    In the age of identity theft, layoffs, and mysterious entries on your credit report, it is reassuring to know that once you've joined Third Federal's Mortgage Passport program, you'll never have to worry about being approved for a mortgage again. This prevents the sad cases where consumers who've lost their jobs are stuck in their oversized house or mortgage because they can't qualify for new, lower-priced financing.

    And talk about engendering loyalty. Would you ever move your banking business away from a company that gives you a preapproved mortgage for the rest of your life! That's better than free bill payment by just about every measure.

    Assuming the underwriting is sound, the only downsides are:

    1. Limitations of "by invitation only": While it creates exclusivity and ensures the highest credit quality, what about prime prospects just moving into Ohio or Florida that have not received the bank's preapproval offer? There should be some application process to receive the coveted "invitation."
    2. Thirdfederal_mtgpassport_homepage Undermarketed on its website: Again, because of the by-invitation-only nature, the program's promotional material is low-key so as not to disappoint the majority of visitors not previously qualified for the program. The bank provides a homepage link (click on the inset for a closeup), but the tiny, almost unreadable copy says only, "Click here if you've received an invitation to participate in our passport program."

    --JB

    Comments (2)

    Online Balance Poaching: E*Trade's Mileage Maximizer

    By Jim Bruene on December 7, 2005 9:47 PM | Comments

    Credit card companies have been poaching revolving balances from each other for years primarily through direct mail. It helped boost the share of early movers, such as Capital One. But once the tactic was widely copied, it dragged margins down for all.

    The same technique has been used online with dedicated balance-transfer microsites posted by Bank of America and others beginning in 2003. The online balance transfer is better than paper because it can be interactive, prompting the user to make additional transfers, or to correct errors in the information input. However, it still requires the user to make a trip to the website to make the transfer.

    Etrade_mileagemaximizerEnter E*Trade's new Mileage Maximizer program, launched with a page-dominating color ad in Tuesday's Wall Street Journal. With the Mileage Maximizer, the bank encourages users to make purchases on their existing non-E*Trade rewards card, then have the balances AUTOMATICALLY swept to an E*Trade 8.9% APR line of credit each month. The bank's website is used to initiate and maintain the transfer process. But like recurring bill payments, once the sweep is established, it will occur each month with no interaction by the user.

    E*Trade may well be the most innovative online financial services company. Here are some of the industry firsts they've logged over the years:

    • 2001: MyLoanTeam from E*Trade Mortgage (OBR 73)
    • 2003: Real-time funds transfers (OBR 96/97)
    • 2005: 7-year online transacation archives (OBR 118)
    • 2005 (March): First U.S. bank offering security tokens for online access (NetBanker 2 March 2005)
    • 2005 (December): First virtual rewards card, Mileage Maximizer

    --JB

    Editor's Note: Mileage Mazimizer was awarded an "OBR Best of the Web" in our report on online lending published Jan. 31, 2006 (OBR 126).

    Comments

    Zopa Wins OBR Best of the Web

    By Jim Bruene on December 1, 2005 12:58 PM | Comments

    Obr_bestofweb_3UK-based person-to-person lender Zopa <zopa.com> is the fourth and final company to win an OBR Best of the Web designation from Online Banking Report in 2005. Also winning this year were:

    Zopa_peopleThe company's innovative lending model is highlighted in Online Banking Report's annual, Top 10 Achievements in Online Financial Services. The report will be published next week (OBR #125).

    --JB

    Comments
    Categories: Loans & Credit, Zopa

    UK Loan Marketplace Zopa Offers 2% Bonus

    By Jim Bruene on November 22, 2005 3:29 PM | Comments

    Zopa_2bonus_homeThe new UK-based person-to-person loan marketplace Zopa <zopa.com>, first discussed here Aug. 3, is offering a 2% bonus to lenders who make money available prior to 30 November 2005 (click on screenshot left). In order to earn the bonus, would-be lenders must offer competitive rates.

    The website cites an example of the potential return of a 4.9% rate on a 36-month installment loan:

      4.9% interest paid by borrower
    +2.0% Zopa bonus
    (1.3)% expected loss rate
    ----------------------------------
    5.6% return to investor

    Analysis
    Zopa claims to have attracted 32,000 users, including 16,000 lenders in the eight months it's been online. So far, it has not lost any money to loan defaults, but that would not be unusual for a lender in its first few months.

    The 2% bonus to lenders is not sustainable since the company only books a 1% loan fee, plus commissions, if any, when borrowers elect to take credit insurance. Evidently the company has more buyers (borrowers) than sellers (lenders). With such a novel concept, it's no surprise that the number of people willing to take money is higher than those willing to give it out.  As the concept becomes better known, and assuming that interest rates are allowed to float, the supply of money should reach equilibrium with demand.

    --JB

    Comments
    Categories: Loans & Credit, Zopa

    Loan Landing Page Design

    By Jim Bruene on September 28, 2005 11:50 AM | Comments

    Google_homeequitydc_searchOver the next few months, we will take a long look at the marketing of loans and credit lines online. The information will be summarized and analyzed in an Online Banking Report scheduled to be published in fourth quarter. However, as we find interesting examples, we'll report them here first, along with links to the live sites.

    The first example is a good one from HomeLoanCenter.com. We ran a search on Google for "home equity Washington DC." One of the two AdWords banners on the top (click on inset for a closeup) was titled "DC Home Equity."

    Homeloancenter_landingpageClicking on the link took us to the lender's landing page (click on inset for closeup). Although, the page doesn't reinforce the geographic element of our search, it otherwise does an excellent job in reassuring the user and leading them into the application process.

    Along the left side are three important elements:

    • Third-party endorsement from CNBC
    • 3-point "what happens next" instructions
    • Customer testimonials

    The middle of the page includes a toll-free phone number, several brief benefits, and a prominent Start Here to begin the application process. Prospects are only asked to provide a few key data points:

    • name/email/phone
    • state
    • home value/mortgage balance/desired borrowing
    • self-evaluation of payment history from a drop-down list

    The page contains virtually no clickable links. Other than the prominent Submit button, the only links offered are in fine print at the bottom (About Us, Contact Us, Business Hours, Our Guarantees, Tools & Resources, Privacy Policy). This is a good trade-off. You don't want to lose loan prospects by distracting them with navigation choices, but you want to give those that need more information an outlet.

    Overall score: A

    --JB

    Comments

    E-Loan Extends "Employee Pricing" to Loans

    By Jim Bruene on September 2, 2005 12:41 AM | Comments

    Eloan_employee_pricing_emailIn a logical extension of the auto industry's "employee pricing" gimmick, online lender, E-Loan launched a similar program for loans. This email arrived in our in-box yesterday morning. We are not customers, but have signed up for marketing messages (click on inset for closeup).

    According to the email message, the discount on an auto loanEloan_employee_pricing_landing amounts to 0.25%. On a mortgage, the savings are 0.5% of the loan amount. The sale runs through Labor Day weekend only, ending Sept. 6, 9am Pacific Time (click on inset on right, for an archived copy of its landing page).

    Eloan_employee_pricing_websiteIn addition to the email blast, the special is splashed across its website (click on inset for archived copy of E-Loan's homepage, Sept. 2, 2005).

    Note also, the prominent Red Cross link in the middle of the page for making donations to aid Hurricane Katrina victims.

    --JB

    Comments
    Categories: E-Loan, Loans & Credit

    Is Zopa the Next Big Thing in Online Lending?

    By Jim Bruene on August 3, 2005 6:21 PM | Comments

    Zopa_logoThe Internet has changed a lot of things in the past 10 years, but banking isn't one of them. Sure, it's now much easier to check your balance or see who you wrote check #1127 to. But these are incremental improvements. Nothing like what online brokerages did for trading stocks, or eBay for selling junk.

    Thanks to government guarantees, and consumer cautiousness with their money, it's a bit hard to disintermediate the banking system. Or is it? 

    Zopa_borrowingTake a look at UK's Zopa, a recently-launched online loan exchange built by execs from Internet-only bank Egg. Zopa matches lenders and borrowers, cutting out the middlemen (actually inserting themselves in the middle instead of a bank), potentially creating a more transparent and less expensive system (Zopa takes a 1% loan fee).

    Like the U.S. mortgage system, risk is spread around by splitting each loan into 50 or more pieces that are pooled and repackaged into loans that are placed with individual investors (i.e. lenders). The borrowers and lenders remain anonymous to each other.

    Funding from Benchmark Capital and Wellington Partners is further insurance that the company will be taken seriously.

    Analysis
    Is this a disruptive banking technology? Maybe. Variations on this theme, such as Circle Lending, are in existence. But there hasn't been an effort as well funded and stocked with talent as Zopa. If anyone can pull this off, it's the Egg folks. The Zopa website is fresh and irreverent, taking on banks at every step of the way (click on inset above).

    Banks are easy targets, but to make this work, it's going to take an extremely user-friendly system, some fantastic marketing, and a little luck. One of the big problems any startup lender faces is adverse selection. In other words, too many borrowers will be on the verge of a sharp decline in their creditworthiness; a decline not yet reflected in the credit score used to screen borrowers and price their loan.

    The only real cure for that is perfect underwriting and lots of volume, that's why preapproved credit card direct mail has worked so well for several decades.

    The company hopes to take the concept to the United States later this year. Given the speed of our regulatory approval process, that seems unlikely. Look for it in late 2006 or early 2007, if the UK version begins to gain traction.

    We'll take a look at the concept in much more detail in an upcoming Online Banking Report.

    --JB

    Comments
    Categories: Loans & Credit, Zopa

    eBay Motors' FOR SALE Sign Direct Mail

    By Jim Bruene on July 13, 2005 4:15 PM | Comments

    Ebaymotors_protectionsLooking for a way to boost your market share in direct vehicle lending? Consider setting up an online used car emporium either using eBay as the transactional platform (recommended) or programming the site yourself.

    Even though you could do it yourself, it would be difficult to match the auction giant's powerful set of FREE buyer protections including (click on inset) including:

    • Purchase Protection: Reimburses up to $20,000 for fraud and material misrepresentation after a $100 deductible
    • 30-day, 1000-mile Service Agreement: Provides a 30-day warranty on major breakdowns on most cars under nine years old after $500 deductible
    • Ebay Feedback Rating: Prospective buyers can review the seller's track record via the eBay feedback system

    In addition, users can review the vehicle's history by searching Experian VIN # records via an online link. Cost is $7.99 for a single VIN # search, or $14.99 for up to 10 searches. Finally, buyers can order a pre-purchase inspection of the vehicle for $100.

    Financial Institution Opportunities
    Here's how a financial institution virtual vehicle site could work:

    1. Using eBay programming tools (eg. APIs), create a website that aggregates local vehicles listed on eBay.
    2. Buyers would handle the transaction through normal eBay channels, but you would have the first chance to make the loan. In order to maximize the returns, it's recommended that you allow buyers to make purchases from anyone. As you'll see later, the eBay fraud protection programs mitigate much of your risk in making "person-to-person" auto loans.
    3. To further boost volume, consider helping sellers market their vehicles in any of the following ways:
    • create downloadable FOR SALE signs complete with purchase details and/or referring potential buyers to the online auction (see inset for a version recently distributed by eBay in a direct mail program)
    • provide a customizable template for users to create their online auto listing
    • integrate customer listings with your own inventory of repossessed autos for sale
    • provide "incentive financing" programs that sellers could use
    • offer a wide variety of loan options for cars sold through the site

    Analysis
    The virtual auto emporium would have several marketing and promotional benefits:

    1. Creates interest and publicity about your website
    2. Drives traffic to your lending area
    3. Increases vehicle loan volume
    4. Creates an interesting program that could be featured in website, statement, and direct marketing campaigns (see eBay DM samples below)

    Addendum: Ebay Direct Mail
    Here are close-up views of the recent eBay direct mail received in early July. We may have been targeted due to recent activity, our second eBay Motors vehicle purchase.

    Ebay_4_sale_dmThis 9x12 inch cardboard sign looks very similar to a sign you might purchase at the local drugstore to stick inside the window to advertise a car for sale. The FOR SALE is in bright orange and includes references to the FREE $20,000 purchase protection and FREE 1,000 mile service agreement (not visible in this scan).

    This eBay version is intended to be displayed within the car and highlights the eBay listing number for more information. The back of the sign (click on the image below for a close-up), lists the features and benefits of selling your car through the auction site. It also includes an offer to return the $40 listing fee if the vehicle doesn't sell. Sellers also pay a $40 flat transaction fee ($80 in total) if the vehicle sells.

    Ebay_4_sale_back_dm --JB

    Comments

    Online Referrals for Real Estate Agents

    By Jim Bruene on December 9, 2004 4:10 PM | Comments

    Link: WSJ.com - Online Referrals For Home Sales Gain a Toehold.

    Here's a way to gain incremental mortgage sales, new banking customers, and potentially a bit of direct fee income from your online services.

    Develop an online real estate agent referral program.

    Visitors would be able to query your website to find qualified agents specializing in their target neighborhoods. You could do it as a pure marketing play, with no Amexgiftcardincentives or referral fees; or you could provide eye-popping incentives, such as $2500+ gift cards from Home Depot or American Express offered by LendingTree at their realestate.com site.

    In the LendingTree program, the value of the gift card depends on the size of the home purchased and/or sold (you receive an incentive for both buying and selling) as follows:

    Incentive  Combined Value (bought & sold)
    $250         $100,000
    $500         $150,000
    $1000       $250,000
    $1500       $350,000
    $2000       $450,000
    $2500       $550,000
    $5000       $1.1 million
    $10,000    $2.1 million

    The incentives are funded by the agent receiving the referral, who rebates a third of their sales commission to LendingTree. The consumer ends up with approximately $500 for every $100,000 in home value over $50,000.

    LendingTree also tacks on an extra $100 if the buyer gets the mortgage from a LendingTree lender.

    Currently, 7% of home buyers say they found their real estate agent through the Internet. (Source: National Association of Realtors study of transactions in 2003 and 2004, as cited by The Wall Street Journal, Dec. 9, 2004)

    Caveats
    This strategy is not for the faint of heart. While consumers will love it, driving additional business to your mortgage products, most real estate agents will hate it. So you have to weigh carefully whether it's worth the potential heat. If you rely on real estate agents for mortgage leads, you might want to consider the non-incentive version, where you simply forward home sales leads to agents based on zip code.

    -- JB

    Comments

    Bill Payment as a Loan Acquisition Tool

    By Jim Bruene on February 4, 2002 7:43 AM | Comments

    Online bill payments already number nearly a half-billion per year, about 7 per online household per year. Within 5 years, that number will nearly triple to 20 per online household per year

    With competitive and consumer pressure to do away with most, if not all fees, and with many bill-pay users maintaining low checking account balances, the most likely path to profits is through lending services. Every bill pay account should be tied to an integrated line of credit. Following is a pro forma product offering:

    Product Profile: iPaid* Account

    Description: A single account that pays interest on deposit balances and collects interest on credit balances. Alternatively, it could be a traditional checking account with an overdraft line of credit attached.

    Interest Rate: Positive (debit) balances earn interest based on the national average for interest checking accounts plus a small margin (e.g., 25 basis points); negative (credit) balances pay a variable APR tied to prime plus a margin which would depend on your market and strategies; 0.50% APR discount when at least one bill payment is made from account in the month; can be secured by home equity for tax advantages (with or without an APR reduction).

    Monthly/Annual Fee: No charge, provided you make at least one bill payment, otherwise $5 per month.

    Transaction Fees: No charge for first 20 bill payments each month, then $0.50 each; $20 for guaranteed overnight delivery of any payment.

    *Not entirely coincidentally, Online Banking Report owns the domain name ipaid.com. It’s one of several domain names, including eBillPay, ePaid, 1fn, Bankfn, Bankfi, BillFactory, InternetBills, TheBills, MyChecking, MyATM, MyStatement, we registered several years ago for a possible business venture. Anyone interested in acquiring the rights to any of these should contact OBR publisher Jim Bruene, jim@netbanker.com, (206) 517-5021. Bill pay and loans: a natural combination

    One reason credit card marketers drop a preapproved solicitation in your box seemingly every day is that they know the importance of timing. It’s not enough to have a good brand name and killer offer, successful card solicitations must arrive when the prospect is feeling a need for additional credit. Even though certain times of year are more productive (tax time, year-end holidays, etc.), it’s still mostly a hit-or-miss proposition in the snail-mail world.

    Virtual Financial Services, recently acquired by Digital Insight, shows a preapproved car loan ad in its demo.

    But Web-based bill-pay changes that picture. Using buttons, bars, and banners financial marketers can get an unobtrusive offer in front of users at precisely the moment they are thinking about their finances – while paying bills. To maximize loan sales, offer several options:

    •          pay the bill directly from an existing credit line
    •          charge the bill to an existing credit card
    •          request a line increase to pay the bill
    •          request a new loan to pay the bill

    Simplicity is vitally important

    Timing isn’t everything. To generate new loans, you’ll also need to make it exceedingly simple to apply. Prime credit prospects are conditioned to expect preapproval.

    02-feb-loantool1a.jpg

    If you served this banner to bill-pay customers three times per month for a year, what do you suppose your cumulative response rate would be? 5%? 10% 25%? It depends on many factors, but we’d wager it beats direct mail by a large margin for a fraction of the cost.


     

    Back-of-the-envelope ROI

    To illustrate the power of your online channel as a loan-generation engine, let’s crunch some numbers. The results are expressed at right as Net Present Values (NPV) per incremental loan for various loan balances and interest rates. For example, if you originated a single line of credit with an average loan balance of $10,000 with a net interest margin of 6%, its NPV would be $3,700. Following is an explanation of the calculations and assumptions:

    02-feb-loantool2.jpg

    1.       Incremental Loan Balance (outstandings): Assume each new bill pay customer builds up an incremental $10,000 in “bill pay” balances over time. (Note: For the sake of simplicity we’ll assume the loan balances are in place immediately.)

    2.       Net Interest Margin: Since many users are relatively price insensitive to this type of credit, expect net interest margins of 5% to 10% (even after loan losses have been factored out).

    3.       Annual Profit Contribution: At a 6% spread, the loan would generate $600/yr in profit contribution.

               $10,000 balance x 0.06 = $600/yr

    4.       Lifetime Value: Satisfied bill-pay customers are likely to stay with you for a long time, especially as the switching costs to unwind their electronic connections grow with each new service you provide. Assume the bill-pay loans stay on your books an average of 10 years. This gives each new bill-pay credit line a lifetime value of $6,000, or $3,700 discounted at 10%.

                $600/yr x 10 years = $6,000

          Discounted at 10% (NPV) = $3,700

    5.       Acquisition Costs: How much would you pay to acquire new loans each with a lifetime value of  $6,000 (NPV of $3,700)? $300? $500? $1,000? Whatever the figure, you can use it to establish a realistic budget for your online channel. Assume you want to attract 250 new accounts each month, 3,000 in a year, and are comfortable spending $500 to acquire each one. That equates to a $1.5 million budget.                                                  

    Comments

    Open Lending in Practice for Online Mortgage Brokers

    By Jim Bruene on May 2, 2001 1:46 PM | Comments

    Full disclosure from IndyMac. Not only do they dare to list their toughest competitors, they even provide direct hyperlinks to make it easy for users to check out the competition. In this example, LoansDirect ($1,076 savings) and MortgageBot ($605 savings) both offered substantial savings on loan origination fees for a 30-year, 7% mortgage.

    Open lending has long been embraced in the off-line mortgage market. Mortgage brokers, accounting for nearly 7 out of every 10 retail mortgage origination in 1999,1 have been practicing a form of open lending for years. In theory, they take a customer’s loan application, match it with the best loan program from dozens of wholesale lenders, and deliver the best possible deal.

    In practice, the process is ripe for abuse. As with any 100%-commission product, there is a temptation to recommend the loan that is best for the broker’s pocketbook, not the applicant’s. The personal finance literature is full of warnings about this conflict of interest.

    1Source: Mortgage Banking, 4/01; the percent fell to less than 50% in preliminary 2000 data.

    On the Internet, it’s easier for consumers to compare prices and avoid purchasing a non-optimal product.  According to Mortgage Banking (Oct. 2000), 56% of recent homebuyers used the Internet at some point in the mortgage process . However, loans, and mortgages in particular, can be hard to compare, that’s why the auction model makes so much sense.

    LendingTree, by far the industry leader, struck a chord last year with its $50-million advertising campaign featuring bankers falling all over each other trying to capture the applicant’s business. The company is beginning to reap the rewards of its 40% consumer awareness level. Last year the company received 1.8 million loan applications, 716,000 (40%) of which were good enough to funnel to one or more of its 100+ lenders. The results: 57,000 closed mortgage, home equity, auto, and personal loans and 88,000 credit card accounts


    MortgageBot goes even further for rate shoppers. It allows users to search in their home market if desired.

    By selecting the “Apples to Apples” section, users can view profiles of the top mortgage sites as determined by Gomez.


    In total, LendingTree facilitated $4.6 billion of closed loans in 2000, more than 10% of the entire online loan market, according to figures in its annual report.1 In 2001, the LendingTree may double that amount, booking close to $10 billion, while reaching profitability in the fourth quarter.

    What have you got to lose?

    In a recent Mortgage Banker’s Association study of consumers using the Internet in the mortgage process, 72% shopped more than one lender (see Table 1, below). Furthermore, 12% of those looked at 5 or more lenders. Shopping was even more prevalent in the refi segment, with 85% looking at more than one lender; and 17% of those considering 5 or more.

    Table 1

    Lenders Considered by Online Mortgage Shoppers

    percent of sample performing each activity

    Activity Total Home Buyers Refis
    n= 865 n = 584 n = 281

    Considered only 1 lender

    24% 28% 15%

    Shopped more than 1

    76% 72% 85%

    If shopping, how many lenders considered?

    2-4

    88% 90% 83%

    5 or more

    12% 10% 17%

    Source: 2000 Internet Home and Mortgage Shopping Survey, Mortgage Bankers Association, 10/00 (see Table 2)

    Let’s say you aggressively roll out open lending on your Web site. Even if 25% of your applicants ended up with brand X, we believe you would still be far ahead in the long run. First, you’d have a much larger applicant pool as word got out. Second, satisfaction would increase with the more open process resulting in a higher close rate and more repeat business. Third, by referring marginal applicants to appropriate financing alternatives, there would be fewer outright declines, so you’d have less angry (ex) customers for your other banking services.

    And even if some of your best customers ended up with a Brand X loan initially, you would still be in a great position to bring them back with a preapproved refinance offer when rates dropped.

    Or you could be more aggressive on the front end, offering to beat the competitor’s rate before it closed. For example, say a customer is approved for a Brand X HEQ loan of $75,000 for 50 basis points (0.5%) less than your published rate. If you thought this customer was worth keeping, and you trusted the underwriting process of Brand X, you could match the rate, add $5,000 to the credit line, and handle it as a “prequalified” deal, so the there was little additional paperwork.     8

    1Total online lending market size was estimated as $44 billion by Forrester.


    Research Notes

    Consumer Attitudes

    • 27% of consumers reported that poor customer service kept them from getting their loan online
    • 22% were concerned about privacy and security
    • 14% were concerned about closing the loan on time

    Source: Nick Karras, (nkarris@gomez.com ) Gomez Advisors, in speech at the most recent MBA Technology Conference (reported in Inside Mortgage Technology, May 7, 2001)

    • 53% of consumers want to simplify their personal financial services by maintaining a relationship with their mortgage origination firm and tracking their monthly mortgage payments online
    • 27% of online mortgage shoppers who elected not to apply did so because they wanted service from a local branch

    Source: Mortgage Banking, April 2001

     

    Table 2

    Mortgage Shopper Attitudes on Applying Online

    percent of sample listing each reason

    Activity Total Home Buyers Refis
    n= 865 n = 584 n = 281

    In the future, how likely are you to use the Internet to apply?

    Definitely will

    23% 19% 32%

    Probably will

    25% 25% 26%

    Might/might not

    39% 42% 31%

    Probably will not

    10% 12% 8%

    Definitely will not

    3% 3% 4%

    Of those who are hesitant to apply (might not, probably will not, and definitely will not), why? (can select more than 1)

     

    n = 487 n = 354 n = 133

    Prefer personal contact

    56% 59% 48%

    Do not feel safe*

    38% 34% 47%

    Cannot locate needed info

    15% 15% 17%

    Other

    10% 10% 11%

    No answer

    10% 9% 11%

    Source: 2000 Internet Home and Mortgage Shopping Survey, Mortgage Bankers Association, Web-based survey of 1,005 consumers who took out a mortgage in 2000 (new or refinance) and used the Internet at some point during the home buying or mortgage process, fielded Oct. 17 through Nov. 7, 2000

    *Full answer: I do not fell safe providing my personal info via the Internet

    Customer Service Performance

    • Gomez Advisors found that only 33% of  online lenders provided timely email responses
    • 40% of online lenders who were sent an email asking for a return call to apply by phone did not answer the message

    Source: Mortgage Banking, Dec. 2000

     

    Commercial Bank Efforts

    Bank of America recently launched a private-branded version of Homestore.com at    www.bankofamerica.com/homesolutions  as part of a $10.5 million marketing and Web services agreement between the companies.

    Source: company press release, 5/01

    • More than 50% of CitiGroup student customers apply for their student loan online

    • 29% of CitiGroup second-mortgage business is over the Internet

    Source: Mortgage Banking Oct. 2000

    • 16% of banks under $10 billion have implemented online lending (April 2001 study by Tower Group)

    • 1,830 of 4,541 (40%) credit unions with more than $10 million have online loan applications (NCUA Dec. 2000)

    Source: as reported by CUES Techport, 5/29/01

     

    Consumer Demand

    • 60% of those looking for mortgages go to the Web for some sort of assistance (according to Morgan Stanley Dean Witter)

    • 56% of those recently buying a home used the Internet at some point in the mortgage process

    Source: Mortgage Banking Oct. 2000


     

    Table 3

    Activities of Online Home/Mortgage Shoppers

    percent of sample performing each activity

    Activity Total Home Buyer Refi
    n= 1005 n = 709 n = 296

    Used Net during mortgage process

    86% 82% 95%

    Activities of those who used Net in the mortgage process:

     

    n = 865 n = 584 n = 281

    Obtaining info on rates

    87% 89% 83%

    Obtained info on mtg. process

    65% 69% 54%

    Finding a lender/broker

    37% 32% 48%

    Applied for preapproval/prequal

    31% 31% 32%

    Applied for loan

    20% 15% 30%

    Closed a loan

    5.1% 3.9% 7.5%

    Source: 2000 Internet Home and Mortgage Shopping Survey, Mortgage Bankers Association, Web-based survey of 1,005 consumers who took out a mortgage in 2000 (new or refinance) and used the Internet at some point during the home buying or mortgage process, fielded Oct. 17 through Nov. 7, 2000

     

    Vendor Processing Volume

    According to Digital Insight, as of Dec. 2000, the six leading online loan application vendors were processing nearly 100,000 applications per month. In comparison, LendingTree processed about 133,000 applications per month on behalf of its 114 lenders (see Table 17).

    Table 4

    Application Volumes at Third-Party Processors

    percent of sample performing each activity

    Processor

    Apps/Mo % of Total

    Digital Insight

    25,000

    26%

    Lending Solutions

    20,000

    21%

    FiData

    20,000

    21%

    Fiserv

    17,000

    18%

    Appro

    10,000

    10%

    Alltel

    5,000

    5%

    Total

    97,000

    100%

    Memo: LendingTree, Q4 2000 average

    133,000

    n/a

    Source: Digital Insight, 12/00, as reported by CUES Techport, www.cuestechport.com , 5/29/01

     

    Mortgage Distribution

    Number of mortgage brokerages (retail)

    30,000

    Market share

    50% to 70%*

    Number of mortgage bankers (retail, wholesale)

    2,500

    Market share

    30% to 50%*

    Number of online mortgage lenders tracked by Gomez

    300

    Source: Tuttle Risk Management Services, cited by Mortgage Banking, 6/01 Gomez Advisors, 5/01

    * varies by year


     

    Table 5

    Gomez Quality Indicators

     

    Metric

    2001

    2000

    Spring

    Winter

    Fall

    Summer

    Spring

    Percent of visitors* who closed loans

    0.14%

    0.34%

    0.30%

    0.30%

    0.80%

    Percent of visitors* who started application

    ina

    ina

    4.3%

    3.4%

    4.5%

    Percent of applications that were completed

    ina

    ina

    28%

    56%

    39%

    Percent of completed applications that closed loans

    ina

    ina

    27%

    39%

    44%

    Percent of customer service calls returned within 5 minutes

    52%

    ina

    ina

    ina

    ina

    Percent of email inquiries answered correctly within 24 hours

    25%

    ina

    ina

    ina

    ina

    Average site speed

    2.0 seconds

    ina

    ina

    ina

    ina

    Web site failure rate

    1.1%

    ina

    ina

    ina

    ina

     

    Source: Gomez Advisors <Gomez Advisors> as reported by Mortgage Banking, 2000/2001                       
    *total unique site visitors

    Comments

    Open Lending Gains Momentum

    By Jim Bruene on May 1, 2001 1:39 PM | Comments

    In Online Lending part 1, we argued that banks should embrace what we called Open Lending, a strategy of guiding customers to their optimal source of credit, even if that means helping them secure a loan from another financial institution.

    This doesn’t mean tossing the value of your brand and customer relationships out the window. It’s more like American Airlines in the early days of its SABRE reservation system. You show all available options, but position your rates first, and in the most desirable light. But more importantly, you make it far easier and faster to apply with you.

    IndyMac, Gomez’s top-rated mortgage lender, demonstrates how this concept can play out in the mortgage space. Users select a loan type, e.g., “loans under $275,000 with a 7% rate,” and IndyMac compares its total origination cost to eight of its toughest competitors, including LoansDirect, E-Loan, and Countrywide (see Table 1, below).

    Table 1

    Competitive Price Comparison from IndyMac’s Web site

    origination fees for 7% mortgages less than $275,000

    Lender

    Discount Points
    (%)

    Discount Points
     ($)

    Lender Fees

    True Lender Cost

    With Us You Save

    IndyMac Bank

    1.125%

    $1,969

    $795

    $2,764

      --------
    BofA

    1.639%

    2,868

    875

    3,743

    $980

    Countrywide

    1.750%

    3,063

    840

    3,903

    1,139

    Ditech

    1.250%

    2,188

    1,086

    3,274

    510

    E-Loan

    1.524%

    2,667

    0

    2,667

    (97)

    WAMU

    1.375%

    2,406

    600

    3,006

    243

    LoansDirect

    0.250%

    438

    1,250

    1,688

    (1,076)

    Citibank

    1.375%

    2,406

    775

    3,181

    418

    MortgageBot

    1.125%

    1,969

    190

    2,159

    (605)

    Source: IndyMac Web site, 5/18/01

    The competitive comparison could be made even stronger with other factors such as approval time, service guarantees, and other intangibles. Finally, you could leverage rate uncertainties by showing your rate as locked for applications received today.                          

    For now, specialist lenders are way in front of banks in the online mortgage arena. And don’t expect these savvy lenders to be satisfied with just the first mortgage portion of the financial services pie. The top four highest-rated mortgage lenders on Gomez already have banking charters at the parent company:

    1.       IndyMac became a bank holding company last year.

    2.       LoansDirect was purchased by E*Trade in February and is being positioned as a division of E*TradeBank.

    3.       MortgageBot is a spin-off of M&I, a Wisconsin-based banking company.

    4.       Countrywide, the largest mortgage lender in the country, has purchased a bank and was just granted approval to become a bank holding company.1 Jumping the gun a bit, banking has already been added to its home page menu, even though the functionality is still under construction (screenshot above).


    Now that leading online lenders have put together excellent mortgage sites, and the refinancing boom has renewed faith in their business models, we believe home equity (HEQ) lending is the next area of aggressive expansion. E-Loan, for one, launched its home equity product in December, and it accounted for 3.5% of its dollar volume in Q1 2001.

    Why the push to HEQ?

    • It uses many of the same core competencies as mortgage lending.
    • It’s easier to do online than a first mortgage.
    • It’s profitable, oftentimes more so than first mortgage lending.
    • It tends to be somewhat counter cyclical to the mortgage business. For example, when refinance volume is up, home equity loans tend to get paid off and closed.

    1Countrywide purchased Washington D.C.-based Treasury Bank, renamed it Effinity Bank, and plans to market under the Countrywide Bank brand. Countrywide won conditional approval from the Federal Reserve Board to become a bank holding company.


     
    We expect a mini-boom in home equity lending later this year as customers who closed their home equity lines as part of a refinance seek a new line of credit. According to the Mortgage Guaranty Insurance Corp.1, in the latest refi surge, six out of 10 borrowers are either taking cash out of the refinance and/or consolidating one or more other loans into the mortgage balance.

    LendingTree’s full-year 2000 results show the importance of home equity lending. Even though home equity applications numbered only half that of first mortgages, home equity loans brought in nearly as much revenue as the mortgage business, $10.3 million vs. $11.1 million (see Table 17). The primary reason: a valid2 HEQ application is four times as likely to close as a mortgage application.

    Whether it’s mortgage refinance, home equity, or some other type of loan, you have the brand, the trust, and the customer file. And you know loans. Put it all together; online lending is a business you simply must go after.

    1According to an op-ed piece by MGIC CEO Curt Culver in Mortgage Banking, 6/01

    2A “valid” application is one that ends up being transmitted to at least one LendingTree network lender.

    LendingTree uses an “open lending” positioning with this banner ad on BankRate.com’s Home Equity section (6/11/01) www.bankrate.com/brm/rate/loan_home.asp?nav=ln

    Comments
    Categories: Loans & Credit

    Nine Ways to Promote a One-Click Loan Program

    By Jim Bruene on November 6, 2000 5:36 PM | Comments

    Marketing One-Click Loans
     

    1 Create a One-Click loan registry

    Invite users to preregister in your loan center so that when they need credit, they can simply use the one-click function to apply. You’ll need tangible incentives to encourage registration, such as sweepstakes, discounts, rewards, and so on.

    2 Plaster the One-Click button all over your Web

    A common trait of successful ecommerce sites is they make it easy to buy profitable merchandise. Banks need to do the same. Every content area and function on your Web should be just one click away from The Express Loan Application Center.

    3 Place your One-Click logo all over the Net

    Again, following the Amazon.com approach, position your one-click logo at the places on the Net frequented by your target segments. Look for places where big-ticket purchases are researched such as vehicles, home purchase/remodel, rental accommodations, travel, and so on.

     

    4. Create a One-Click associates’ program

    Establish an associates program and pay commissions for each deal sent your way. Many Web lenders, including NextCard and LendingTree, have active associates’ programs.

     

    5. Put the One-Click logo on paper statements

    Invite users to your Web site by posting the One-Click logo on your paper statements and other customer correspondence.

     

    6. Establish a One-Click Web URL

    Develop a starting point with an easy-to-remember Web address such as <oneclick.yourbank.com>,  www.yourbank.com/oneclick  or even  www.oneclickyourbank.com  

     

    7. Establish multiple One-Click Web URLs

    To increase exposure on search engines, consider multiple lending URLs reflecting each target segment, for example:

     www.atlantaoneclickloans.com

     www.georgiaoneclickloans.com

     www.smallbizoneclickloans.com

     

    8. Send One-Click emails to registered users

    Remind registered One-Click users that their loan is ready and accessible by a simple click on the hyperlink in the email. Email reminders could be sent at regular intervals, especially as any offer period is about to expire.

     

    9. One-Click referral program

    Incent users to spread the word about your loan programs. We recommend cash payments of $50 to $100 per loan, split evenly between the referrer and applicant. Also, give every participant one entry into a sweeps for each referral made (regardless of whether a loan was booked.)

     


     

    Comments
    Categories: Loans & Credit

    Building an Online Loan Center that Really Clicks with Users

    By Jim Bruene on November 5, 2000 5:22 PM | Comments

    Credit is life-cycle-driven. Consumers who shop rates turn to the Web, and when they do, they’re less likely to borrow from a bank. Slimmed-down specialists will win online consumers’ business.

     – Kenneth Clemmer, Forrester Research, “Why Bank Loans Suffer Online”

    Bank of Dreams Loan Center

    Source: Online Banking Report, 11/00


    In one of the first research studies to delve into the question of how well banks will fare online when competing against non-bank specialty lenders, Forrester analyst Kenneth Clemmer concludes that in the process of shopping rates online, consumers will become more aware of non-banking financial specialists offering better rates, resulting in lost business to banks.

    That’s may be true, but research also indicates that loan decisions involve far more than rate. There are a number of tools banks can use to focus attention away from who has the lowest rate. Convenience, quality, reputation, loan servicing, security, privacy, preapprovals, previous experiences with the lender, and branding are all factors weighing into the final decision.

    However, when designing an effective online lending operation, banks must keep in mind that the majority of their good prospects will be inclined to shop rates online. And the less convenient the bank’s loan process is, the more likely consumers will shop around.

    In this Report, we outline an online loan-origination system that caters to the psychological needs of online loan buyers. Users must be assured of getting a fair and timely evaluation and a competitive price. And the more control you give customers over the research and evaluation process, the more likely they will be to apply for your loan, even if it doesn’t offer the absolute lowest rate in the cosmos.


     

    I. Research Center


    What’s the first rule of business? Give customers what they want. It’s clear that on the Internet, consumers love to research, especially big-ticket items such as cars, stocks, homes, remodels, computers, and so on.

    Credit shopping has grown dramatically in the past three years as shown in Table 1. Online households that applied for a mortgage (on or offline) and conducted mortgage research online have grown from zero in 1996 to more than a third of all applicants in 1999. And the popularity continues to grow. According to Forrester, more than two-thirds of online households expecting to get an auto loan in 2000 plan to research the loan online.

    Table 1

    Online Credit Shopping Trend

    online households that applied for each product

    Product

    1996

    1997

    1998

    1999

    Mortgages

    <1%

    9%

    16%

    32%

    Car loans

    <1%

    5%

    9%

    13%

    Source: Forrester Research, Why Banks Suffer Online, by Kenneth Clemmer, published 5/00 with data based on a 100,000 person North American survey fielded between Nov. 1999 and Jan. 2000.

    n.m. = not measured

    This makes a Loan Research Center a crucial part of your efforts to capture the attention of both existing customers as they begin the loan research process and non-customer surfers who happen to get to your site through banner ads, offline branding, or serendipity.

    According to Forrester, consumers view their online credit research experiences as moderately satisfactory but are generally unenthusiastic about the process. The average satisfaction score on a 5-point scale with 1 the lowest, was 3.5 for mortgages and 3.7 for car loans (see Table 2). That means on average about half the respondents said the experience was OK and the other half said it was good.2

    1Of U.S. households that bought a car between 9/99 and 3/00, 42% of new car buyers and 32% of used car buyers used the Internet for research.

    2According to Forrester a mid-3 score on a 5-point scale with 5 the highest, means that users tolerate the product but are unenthusiastic.

    There is room for proactive financial institutions to gain a following among users by providing better research tools.

    Table 2

    Online Credit Research

    online households that applied for each product in ‘98 or ‘99

    Product

    Score1

    % Research  online2

    Research Location

    Bank

    Portal

    Other3

    Loans

     

     

     

     

     

    Car loans

    3.69

    11%

    64%

    41%

    39%

    Mortgages

    3.49

    24%

    49%

    34%

    58%

    Other Financial Products
    Credit cards

    3.84

    41%

     

     

     

    Auto insurance

    3.48

    n.a.

     

     

     

    Source: Forrester Research, 5/00, Why Banks Suffer Online

    1The respondents rated the research experience on a scale of 1 to 5 as follows: 1 = awful, 2 = poor, 3 = OK, 4 = good, 5 = great.

    2Percent of 46 million online households that have applied for each loan type within the last 2 years and used the Net to research loans prior to applying

    3Includes rate comparison sites such as BankRate and brokers such as E-Loan

    You have precious few seconds to engage prospects as they land on your Web. As we pointed out last month in Building the Amazon.com of Financial Services, Version 2.0 , you should offer something useful, easy-to-understand, and free. You also want users to identify themselves with at least an email address early in the process so you can draw the shoppers back to your site when they are ready to apply.

    We recommend dividing the Research Center into two parts, both of which would be free: a basic area that can be used by anyone, and a premium zone that requires user registration to access.

    A. Registration-Free Zone

    1.       Basic financial calculator: There are hundreds of different online calculators that allow users to evaluate Roth IRAs, the impact of extra principal payments, and so on (see  www.financenter.com ). However, the most important calculator is also one of the simplest: the loan payment calculator. We highly recommend that you provide a clear link into a simple Java-based calculator where users enter any two of the following variables to receive an instant calculation of the third:
    – loan amount
    – payment amount
    – interest rate

    You’ll also want a non-Java alternative for those with older browsers, or who are surfing with Java disabled.

    00-nov-bankrate1.jpg

    Free BankRate.com search button.

    2.        Basic rate search (of the competition): This will be a tough sell internally, but you should consider helping users research rates at your competition. You could simply post a BankRate.com search button on your site (see above). This is free and easy, but you’ll expose users to banner ads for the Blue Light Special at TheLatestNetBank.com. To become a BankRate affiliate, go to  www.bankrate.com/brm/affiliate/affiliate_home.asp

    To keep customers at your site and avoid the banners, consider licensing the rate data directly from BankRate.com or other providers.

    Contact: Ned Newhouse, SVP Sales,                                             nnewhouse@bankrate.com , (561) 630-2400.

    3.       Educational material: While the Education Area is difficult to get enthusiastic about, it shouldn’t be ignored. If you don’t have deep, well-written educational material you lose credibility, and ultimately business. This area could also reduce customer service expense by allowing prospects to quickly find answers to basic questions. We recommend hiring an outside writer or intern to breathe life into what often becomes a dull part of your Web site. 

     

    B. Registration-Required Zone

    This area is still free, but it offers additional value for registered users. A simple registration process allows users to establish a username and password for continued use of the premium features. On the registration form, you’ll probably want to allow customers to opt-out of any email marketing you are considering.

    1.       Advanced calculators and worksheets with saved inputs. Here’s where you post the more-advanced calculators dealing with questions, such as: Should I rent or buy? How much home can I afford?  Ideally, users should have the option to save the data they input into the calculators. Store the info on your server, not in cookies that could potentially be viewed by other users of the person’s PC.

    BankRate.com rate search.
    Note: banner ad on top for CNBC’s loan marketplace powered by LendingTree.

     

    2.       Advanced rate search with email notifications: This feature is similar to the Rate Search outlined in the previous section. In addition to those features, users may establish rate-based and/or periodic emails that keep them informed of changing rates. Users could choose to receive emails based on one or  more of the following triggers:
    – when interest rates reach a certain point
    – when projected monthly payment reaches a
       certain point
    – when rates decline by a certain amount

    Or users could choose to be notified of current rates on the following schedule:
    - daily
    – weekly
    – monthly
    – quarterly

    3.       Free online credit reports: One of the most-used online freebies is the “free credit report.” ConsumerInfo.com has been beating this drum for more than three years and in October bagged more than 3.3 million unique visitors (see Table 4 below). That’s more traffic than any full-service online bank.1 

    The free credit report pitch is so common; most consumers either ignore it or don’t believe it. But we think the same message coming from a bank could be a powerful draw, enticing non-customers to register and provide information that will help you qualify them for loan offers.

    1Among financial companies, only payment specialists, X.com and NextCard, had more traffic than ConsumerInfo.com (see Table 19).

     

    Table 3

    Online Credit Report Providers

    Name

    Launch

    Partners

    Oct. Traffic

    ConsumerInfo.com1

    19963

     

    3.3 million

    QSpace

    7/97

    Yahoo!

    750,000

    TrueCredit

    4/99

    Citibank, Lehman Bros.

    n.m.

    WorthKnowing2

    9/00

    Visionary Systems, Inc.

    n.m.

    Source: Online Banking Report, 11/00; Web traffic from PCDataOnline.com, 11/15/00; 1Also runs several other URLs including FreeCreditReprot.com and CreditMatters.com

    2See Product of the Month write-up

    3ConsumerInfo.com only recently begun delivering reports online

    Table 4

    Online Credit Report Provider Traffic Growth

    thousands of unique users

    Month

    ConsumerInfo

    QSpace

    Total

    2000

     

     

     

    Oct

    3,290

    750

    4,040

    Sep

    2,950

    470

    3,420

    Aug

    3,140

    330

    3,470

    July

    2,120

    300

    2,420

    June

    1,400

    230

    1,630

    May

    1,290

    380

    1,670

    Apr

    1,360

    280

    1,640

    Mar

    1,450

    310

    1,760

    Feb

    1,600

    310

    1,910

    Jan

    1,210

    250

    1,460

    1999

     

     

     

    Dec

    1,400

    190

    1,590

    Nov

    1,740

    100

    1,870

    Oct

    1,840

    n.m.

    1,840

    Growth
        %

    1,450
    79%

    750
    n/a

    2,200
    120%

    Source: PCDataOnline, 11/15/00

    There are now at least four companies providing online credit reports (see Table 3). The pioneer is QSpace, which launched the first online credit report in July 19972 . Several new entrants are also worth a look. TrueCredit.com is backed by Citibank and used in the bank’s MyHomeEquity.com Web site. An even more intriguing entrant, despite a completely forgettable name, is WorthKnowing.com, the latest OBR Best of the Web designee. The Web-only company has partnered with TransUnion to deliver credit reports online. WorthKnowing has built a unique patent-pending loan preapproval process that integrates with the credit report and can be used to turn lookers into loans.

    TrueCredit is another source for online credit applications. They are privately held and partly owned by Citigroup and Lehman Brothers

    4.       Mock application to test the waters with no obligation or credit bureau inquiry: After registering and receiving a credit report online, users could “test the waters” to see what type of loan they might qualify for. Because it’s not an actual loan application and you are not initiating a consumer credit-report inquiry, we don’t believe that it would constitute a loan application from a compliance standpoint. However, it could depend on how the service was worded, so check with your compliance department first. 

    2Actually, Experian beat QSpace to market by a few weeks, but the service was forced to shut-down almost immediately because of a technical glitch which sent credit reports to the wrong people. The service never reopened .


     

    II. Virtual Credit Manager


     

    Last month we outlined a suite of virtual banking products, one of which was the Virtual Credit Manager. The VCM is an account that tracks all credit usage and outstandings across multiple providers and automatically allocates debt to the lowest after-tax source. Below are additional details on how a  VCM could be structured:

    Core Features

    1.       Loans-at-a-Glance (name borrowed from Citibank’s small-business Web, bizzed.com which debuted “Accounts-at-a-Glance” in October) – Using screen-scraping technology from Yodlee, VerticalOne, or others, users could load all their loans onto the site and automatically track payments and outstanding balances.

    2.       Loan Minimizer – Users would designate a fixed amount to be transferred out of a deposit or investment account(s)1 and the software would automatically allocate interest and principal payments across all registered loans (in #1 above) to minimize after-tax interest expense and/or payment amount. An advanced Loan Minimizer could be programmed to automatically analyze deposit and investment accounts and recommend an appropriate amount to be allocated to loan interest and principal repayment.

    3.       Loan Payment Center – Allows users to make online payments to any loan at any lender:

    • Users could make one-time payments or setup automatic recurring payments.
    • Users choosing one-time payment would use a very simple payment screen, akin to PayPal, where users simply enter name, loan provider, loan number, loan amount and hit enter.
    • Users would be encouraged to at establish automatic recurring payments for at least their minimum payment amounts to avoid late fees. The user could manually enter payment amounts each month or screen-scraping techniques could be used to automatically capture the minimum payment and statement balance across all loans and credit cards. The aggregated information would then be emailed to the customer, who would decide how much to pay.1

    4.       Loan Trade-in Dept. (aka loan appraisal, refi) – Users would be encouraged to bring loans in for an “appraisal.” All loan variables would be evaluated and the user would receive a report comparing their loan to all options currently available. Situations with significant cost savings could be handed to human sale reps for telephone and/or email followup.

    Optional Features

    5.       Reducing the risk (aka credit insurance): While many credit insurance programs are of questionable value to the vast majority of consumers, we think the market has room for a fairly priced credit insurance product that covers the outstanding loan balance across all registered loans (from the first section). Coverage and premium amounts would rise and fall automatically depending on the total indebtedness of the user. On mortgages, you could help users cancel PMI (when allowed) and use that monthly payment to fund credit insurance.

    6.       Equity Maximizer (aka Tax Minimizer): A service that allows homeowners to easily turn unsecured debt into home-secured debt, thus qualifying for an interest tax deduction (assuming the customer itemizes taxes). Rather than requiring a full application, customers would simply list the credit obligation they wished to turn into secured debt, and the bank would take it from there, matching the interest rate and term and closing the original loan.2

    7.       Balance Transfer Station: Using real-time credit report data, users could log in and instantly move balances from competing loans to your account.

    1The account funding the payment could be at any bank, credit union, or brokerage that supports ACH withdrawals.

    2Assumes the customer was current on all accounts.


     

    III. Express Loan Application Center


     

    Sections I and II are the loss leaders designed to funnel creditworthy prospects into the Application Center. Here is where you turn lookers into loans, potentially making your entire Web site—loans and other products—into a clear profit center.

    1.       Direct one-click application (with or without recycling).  This is the fastest and simplest way to apply for a loan. Current bank customers simply verify the existing information on file, update it if necessary, and then answer a few questions (this varies by the type of loan and user profile). You might also offer customers the choice of choosing the “recycling option” which turns declined applications over to other credit providers in the hope of finding a loan.

    Table 5

    Users Likely to Choose One-click Direct

    • Time-pressed looking for a quick decision
    • Those seeking the simplest, easiest, or most straightforward approach
    • Impatient users unwilling to consider more complex solutions, regardless of whether they might offer money savings
    • Loyal customers
    • Users who distrust others (more than you)

     

    2.       Bank-managed loan auction (loan concierge)  The bank submits the loan application to one or more auction sites, collects the results, analyzes the choices, and makes a final recommendation. The recommendation may or may not include an offer from the bank. For credibility, users should be able to view the various offers and a complete discussion of the rationale used in making the final choice.

    The final decision will be based not only on price but also on intangibles, such as size and location of the competing lender. Users will be free to select any of the offers.

    Regardless of their choice, users will be encouraged to use the bank’s Loan Payment Center to manage the new loan.

    3.       User-managed loan auction: This is similar to number two, but takes the bank out of the middle. Users submit the loan application to the auction, and the bank bids on the deal on an equal footing with other lenders. At the end of the bidding, users can accept any offer.

    Most banks would choose to offer either number two or three, not both. It’s hard enough for users to comprehend a loan auction; they don’t need the added complexity of two flavors. We believe number two is the optimal choice, but it’s more expensive and may not be feasible depending on the your budget, platform choice, and service provider(s).

    Table 6

    Users Likely to Choose the Auction Option

    • Price-conscious
    • Those that will feel better about their decision if they shop it around
    • Users with time to evaluate multiple offers
    • Users who love a “deal,” regardless of the “time cost” in pursuing the savings
    • Users who distrust or dislike your bank
    • Users who perceive the bank to be high priced
    • Early adopters eager to try something new
    • Those with poor or no credit who hope for a better chance of approval if more lenders review the deal
    • Younger users who are new to the process

     

    4.       Trade-in Department

    5.       Equity Maximizer

    Table 7

    Putting loan tentacles all over your Web

    Web Area

    One-Click Functionality

    Balance inquiry Click to transfer funds from credit line to checking
    Bill payment Click to pay this bill directly from your credit line
    Wire transfer Click to wire funds directly from your credit line
    Investing Click to borrow funds to buy this stock
    IRA Click to transfer funds from your credit line to make your IRA contribution
    Account data Click to get $____ now!
    Calculators Click to get ____ discount
    Rate screens Click to lock in today’s rates

    Click for email updates

    Refi calculator Click here to get this loan

     

    Comments
    Categories: Loans & Credit

    Embracing “Open Lending”

    By Jim Bruene on November 4, 2000 5:12 PM | Comments


     

    Definitions

    Open Lending

    Helping your customers find the best loan, even if it’s from a competitor.

    Loan Marketplace

    A Web site where consumers can apply for loans from multiple vendors.

    Loan Auction Marketplace

    A loan marketplace where lenders bid for the right to originate a given loan application.

    Indirect Lending

    The process of lending to the customers of another company, e.g., originating car loans through a car dealership

    Loan Broker

    Acts as go-between for applicant and lender.

    Source: Online Banking Report, 11/00

    We first wrote about loan marketplaces two years ago after an eye-opening conversation with LendingTree founder Doug Lebda at Fair Isaac’s 1998 Interact In that article, we recommended that banks take part in Mr. Lebda’s system, if only to learn how to originate loans online.

    We still believe in that advice; in fact, we are going one step further in this Report. Lenders should not only participate in loan marketplaces as indirect lenders, but also should steer their own customers to loan marketplaces as part of an open lending initiative..

    Loan Marketplaces: The First Two Years

    Since our mid-1998 report, loan marketplaces have received mixed results. On the consumer side, only LendingTree has been able to build a large following closing more than 200,000 loans in Q3 2000.1 But those loans were driven in by brute spending, a strategy no longer supported by investors. The company’s YTD 2000 operating loss of $52 million (through 9 months), has many observers questioning the validity of the loan-auction business model itself.

    We believe LendingTree has the right strategy. But, like many Internet companies, it must find more cost-effective ways to drive business. One important strategy, called Lend-X, is to work closely with financial institutions to deliver loans to the bank’s customer base.

    1The small business loan marketplace has several promising entrants including LiveCapital and PrimeStreet .

    Table 1

    Advantages of an Open Loan Platform

    •          Maintain continued contact with the customer
    •          Get to monitor the loan traffic: applications, offers, and closed loans
    •          Access to customers’ personal financial statements (if they agree to share)
    •          Potential to book more loans through increased traffic and credibility
    •          Positive publicity and improvements to bank image
    •          Reinforces bank’s role as primary financial provider, increasing account retention across all accounts
    •          Referral fees on loans placed with others
    •          Fewer outright declines equals happier customers and less customer-service expense
    •          Sale of ancillary loan services, such as insurance, home warranties, credit reports, etc.
    •          For mortgage applications, getting the first crack at the home equity loan
    •          You can recommend a refi as soon as rates go down
    •          Increased Web site traffic
    •          Customers are happily surprised by the open platform and pass the word along
    •          Better CRA performance by facilitating loans to a wider range of credit profiles

     

    Table 2

    Disadvantages of an Open Loan Platform

    •          You’ve introduced your customers to the competition; if you have a poor value proposition, you’ll exacerbate the problems you already have
    •          Inevitably, some lost loan deals
    •          Customer confusion over the new process
    •          Lack of control over the pricing and practices of competitive lenders
    •          Customer service complexity in resolving problems associated with other lenders

    Table 3

    Advantages of Lending through an Online
    Loan Marketplace

    •          Incremental loans, loan fees, and loan outstandings
    •          Potential to reduce acquisition costs
    •          Can test new underwriting criteria
    •          Can test new loan products (e.g., sub-prime)
    •          Can test new geographic markets
    •          Can test new market segments (e.g., lawyers)
    •          A way to get started  lending online while building your own infrastructure
    •          Determine how your lending price/performance compares to other bidders
    •          Test the importance of price vs. other loan attributes: For example, if the other three bidders are offering mortgages for 7.25%, you could test whether buyers might pay 7.375% if you require a smaller down payment, bundle a home equity line of credit, and/or give them a free computer, etc.)
    •          Low fixed costs

    Table 4

    Disadvantages of Lending through an Online Loan Marketplace

    •          Lower margins on individual loans
    •          Ultra-fast turnaround time is required on initial loan decision (measured in hours, not days)
    •          Shared customer relationship
    •          Shared control of the loan process
    •          Competitors can better track your pricing
    •          Competition from the loan marketplace or its partners for ancillary services: bill payment, credit bureau services, client-list rental, sales of aggregated applicant info, email refi alerts (e.g., telling your customers when to refi the loan you hold/service); could be mitigated with contractual arrangements
    •          Compliance issues with the bidding process and timing of disclosures (most of these issues have been ironed out, but your compliance department may not necessarily agree with all business practices)
    •          Privacy issues with shared applications
    •          Resource shortages (capital, human, equipment) at the loan marketplace which is still focused on survival (could be mitigated with equity investment)
    •          Customer service coordination and problem resolution
    •          Corporate culture issues

    LendingTree is the dominant consumer loan marketplace today, on a pace to book nearly
    one million loans annually across its network of more than 115 lenders.

    Table 5

    How an Auction Marketplace Works

    the LendingTree process

    1.        User completes an online loan application; a 15-to-30 minute process.

    2.        LendingTree pulls a credit score and classifies the application from sub-prime to A+.

    3.        LendingTree sends the application and credit score to up to four lenders interested in this type of loan. Lenders pay a few dollars for the privilege of bidding on the deal.

    4.        Lenders do their own underwriting, including pulling complete credit bureau report(s). Note: All credit bureau inquires for secured loans/lines (home equity, mortgage, car) received during a 14-day period are counted as a single inquiry for the purpose of calculating subsequent credit scores. This is not the case for personal loans or credit cards.

    5.        As soon as an hour later, lenders post loan offers on the LendingTree Web for viewing by the user. Users are notified when offers are made.

    6.        User selects the offer they like best and works directly with the lender.

    7.        Lender closes the loan using normal procedures and pays LendingTree several hundred dollars at closing.

    Source: LendingTree, 11/00

    Comments

    The Loan Decision Process

    By Jim Bruene on November 3, 2000 5:08 PM | Comments

    One cannot discuss loan products without thinking about rates. It’s often the focus of loan advertisements and is usually the first question out of the mouth of prospective borrowers. On the Web, the majority of credit come-ons, especially for credit cards, feature single-digit teaser rates (see buttons above). This is understandable considering that the primary loan-related use of the Web is to research rates.

    But the borrower’s decision is usually more complex than determining who has the lowest rate, especially with more complex products such as mortgages and home equity loans, to see how one bank moves the focus away from rates). Forrester found that among online researchers, rate mattered more than brand, brick-and-mortar presence, and speed of approval. But even among online shoppers, the loan rate didn’t overshadow other items as much as one might think. Rate came in about 33% more influential than each of the other three items. In other words, rate is very important, but it’s just one of many factors most consumers consider. Also important are line size, turnaround time, reputation of the lender, and other intangibles. The banners above represent some of the other benefits touted online.

    To gain perspective, stop for a moment and think like a consumer. For the sake of discussion, pretend you are 28, newly married, and thinking about buying a house within the next few years. Other than a credit card or two and a dealer-financed car loan, you have little knowledge of the loan process. Table 1 below outlines the decision process you would face as you tried to get your arms around the daunting process of purchasing your first home.

    Table 1

    The Mortgage Application Experience

    00-nov-table5.jpg

    Source: Online Banking Report, 11/000

    Comments
    Categories: Loans & Credit

    US Online Lending Will Surpass Offline Lending Within 10 Years

    By Jim Bruene on November 2, 2000 9:56 PM | Comments

    One can debate whether retailers of hard goods such as pet food and sofas will ever find a sustainable advantage online. On or offline, these retailers must deal with physical inventory (storage, shipping, and tracking), dissatisfaction with the delivered goods, and ultimately returned product.

    Financial products have none of those messy problems. In fact, most financial activity, whether it’s transferring funds, paying bills, or trading stocks, is simply rearranging bits on computer networks — an activity perfectly suited for a Web or wireless front-end. It’s only a matter of time before the majority of financial products are sold, delivered, and serviced online, here’s why:1

    1.       No tangible product to warehouse, process, ship, get damaged, or returned

    2.       Users are already online researching rates; they just need more experience and incentives to transact online

    3.       The next generation of loan buyers, those in their 20s and early 30s today, will have few reservations about transacting online

    4.       It’s a better buying environment: no clerk or salesperson looking over your shoulder while you divulge your most-private financial info.

    5.       It’s easier to shop your loan application at online loan auction marketplaces and feel satisfied that you did your best to get the
    lowest rate

     

    1We know we are “preaching to the choir” here, but given the recent backlash against all things online, we wanted to take a moment to reassure you that online lending is significantly better suited to for the Net than other B2C retail products.


     

    Table 1

    Pros and Cons of Applying Online through the eyes of the consumer

    Pros
    •  less “psychological” risk (e.g., fewer concerns about revealing personal details to someone face-to-face)
    •  perception of a fairer price due to the ability to research prices online
    •  faster turnaround time: the better online programs provide conditional approvals within minutes of applying
    •  useful feedback: the more sophisticated online apps provide feedback and help on every question
    •  less bias: individuals concerned about the fairness of the loan process may perceive an “anonymous” online system to be more objective
    •  money savings: Web-based products often are perceived to be lower priced, and given the expected level of competition, they probably will be
    •  time savings: wired consumers will likely view an online form as quicker to complete than a handwritten one
    • more control/tracking: wired consumers will feel more in control of the application process by using Web and email tools to monitor progress

    Cons

    • more technological and process risk: borrowers using an online loan origination system for the first time (the majority of borrowers during the next few years) will worry about making mistakes with the technology (e.g., hitting enter twice) or with the process (e.g., missing an important email from the lender)
    • more impersonal: some borrowers strongly desire face-to-face contact for reassurance on major purchases
    • less perceived help: many online lending site have a “do-it-yourself” feel, making users feel like they are all alone in the process
    • less control: many casual Net users will feel as if they have less control after pressing submit

    Source: Online Banking Report, 11/00


     

    Table 2

    Projected Online Originations by Loan Type: 1999 to 2003

    number in thousands, dollars in billions

     

    Source: Forrester, 1999              OL %= percent of the dollar volume originated online             1Total originated on- and off-line

    Table 3

    Projected Total Online Loan Originations: 1999 to 2010

    dollars in billions

    Source: Forrester for year 1999 and 2000; Online Banking Report estimates (+/- 30%) for 2001 to 2010

     

    Jumping to the Wrong Conclusion: Will They Apply Online?

    Table 4

    Reasons for Not Applying Online

    00-nov-table4.jpg

    Source: Forrester Research, 5/00 from data gathered in late 1999


    You have probably read that only 1% of all mortgage applications are being submitted online, or that fewer than one in four online mortgage shoppers actually submits an application online. These figures are usually used in trade publications as evidence that mortgages aren’t suited for online delivery, that consumers need the hand-holding only an off-line application can provide.

    We think the writers have it backwards. Given the half-baked state of most online applications in terms of layout, clarity, privacy safeguards, and usage incentives, a 25% penetration rate of online rate shoppers is evidence of high customer demand for online applications. To support our hypothesis, consider the research results cited in the May 2000 Forrester Report, Why Banks Suffer Online (see Table 4).

    Forrester asked online loan shoppers why they didn’t apply online. Respondents mentioned six major reasons. The first five are all related to a single issue: users are uncomfortable with a new process. That will change with time as consumers have more experience with online finances. Only 3% of mortgage applicants and 1% of car loan applicants said they didn’t apply online because they needed more help. This refutes the widely held belief that users won’t apply online because they need help.

    During the next few years, Web lenders will dramatically improve their sales and delivery techniques. As a result, we expect that by the end of the decade more than half of all loan originations will occur online (see Table 3).

    Comments
    Categories: Loans & Credit

    Creating an “Open Lending” Platform - Online Lending, Version 4.0

    By Jim Bruene on November 1, 2000 9:51 PM | Comments

    Embrace and extend is a strategy that’s helped Microsoft maintain its 25-year run at the top of the PC-software world. When a promising new software app begins to show signs of popular acceptance, Microsoft puts its stamp of approval on the code (embrace), then proceeds to rip it apart and add their own, often proprietary, enhancements to make it work better with Windows and Office (extend).

    There isn’t anything particularly sinister about this practice. High-tech companies must ensure that their products continue to work with new customer requirements. On the Web, banks face similar challenges. When an interesting new financial service comes along, such as account aggregation, should banks ignore it, adopt it as delivered by the vendors, or embrace and extend? In the case of account aggregation, we are clearly in the embrace-and-extend camp.

    But what about some of the newer concepts in online lending? We’ve just witnessed the dot-com flame-outs of Mortgage.com and iOwn along with the free-fall in the share prices of most other pure online lenders. Is it time to write off the online loan marketplace as a passing fad?

    Hardly. Despite the rhetoric in the trade press, online lending has a bright future. We predict that within 10 years more loans will be originated online than off, including mortgages. Why the bullish forecast? Despite what their actions suggest thus far, we are absolutely convinced that deep-down most consumers hate the current loan process. It’s time consuming, confusing, and uncomfortable. Even worse, because consumers can’t readily shop their loan application, at the end of the process they are left wondering if they were ripped off

    That’s why we recommend in this report that banks embrace “open lending,” helping customers research rates and even apply for loans at other lenders . The open model, facilitated by LendingTree and others, can be extended by running it within the confines of the bank’s own Web site, allowing the bank to maintain its primary relationship with the user regardless of who books the credit.

    Comments
    Categories: Loans & Credit

    LoanWise Lands American Express as Tenant

    By Jim Bruene on June 22, 1999 11:52 AM | Comments

    NetEarnings/LoanWise

    www.loanwise.com

    LoanWise, a small business credit marketplace,
    landed Ame