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Several key digital lenders posted stronger-than-expected second-quarter originations, indicating rising demand for online loans among consumers and small businesses.
LendingClub Corp., On Deck Capital Inc. and GreenSky Inc. posted 31%, 26% and 36% increases in year-over-year loan originations, respectively. Compass Point analyst Michael Tarkan said LendingClub and GreenSky beat his estimates, adding that digital lending peers OneMain Holdings Inc. and Elevate Credit Inc. also saw strong growth.
Although having an existing relationship and a well-established brand continue to play an important role when borrowers choose their lenders, speed and convenience appear to be increasingly essential, according to results from a recent S&P Global Market Intelligence small business survey. Wells Fargo & Co. and Bank of America Corp. remained the most popular lenders for small-business borrowers, at 8.7% and 6.5%, respectively, but those levels are well below the 25.1% and 12.0% figures recorded in last year's survey.
Small businesses increasingly use digital channels to access financing, benefiting nontraditional lenders such as OnDeck and LendingClub that lack a brick-and-mortar presence. The growing economy is helping boost loan originations, but Tarkan expects the online lenders are also taking some market share from storefront lenders.
Digital lenders are also continuing to expand their partnerships with and funding from the established big banks.
For example, OnDeck licenses its loan underwriting technology to JPMorgan Chase & Co. and plans to unveil its second servicing bank partnership in the second half of the year, CEO Noah Breslow said on a call to discuss second-quarter earnings.
GreenSky's largest banking partners want to increase their commitments over the next year by between $750 million and $1.5 billion each, Chairman and CEO David Zalik said on the company's earnings call. Zalik did not name the banks that plan to raise their commitments, but four banks — SunTrust Banks Inc., Regions Financial Corp., Synovus Financial Corp. and Fifth Third Bancorp — fund most of the loans on the digital lender's platform.
The Atlanta-based digital lender also recently announced a partnership with American Express Co., which one GreenSky executive said should help the company reach more merchants. GreenSky saw its shares dip following its first quarter of reported earnings as a public company. After going public in May, GreenSky's shares have dipped more than 30% and closed Aug. 10 at $16.86.
OnDeck's stock, on the other hand, jumped more than 20% after the company reported earnings Aug. 7. The New York-based digital lender reported second-quarter adjusted net income of $10.0 million, or 13 cents per share, compared with $4.7 million, or 6 cents per share, in the year-ago quarter. The result beat the S&P Global Market Intelligence consensus normalized EPS estimate for the quarter by 8 cents.
Tarkan said there may have been skepticism that the digital lender would be able to continue executing its plan heading into reporting the numbers. But he said there were positive trends in the company's underlying health: yields ticked higher, operating expenses were held in check and funding costs were down slightly.
"It's really hard to poke holes in what's happening with OnDeck," Tarkan said in an interview.
Elsewhere in fintech, the Financial Conduct Authority, the U.K.'s financial regulator, moved to create a global sandbox for fintech companies, along with counterparts in Asia, North America and the Middle East. The FCA launched the Global Financial Innovation Network, or GFIN, to ease the path for fintech companies looking to move between countries as they seek to scale up. GFIN includes 11 national regulators and other associated bodies, but it does not include any participants from other European countries.
Mexico's federal commission Cofemer released a new version of the draft of secondary legislation for the country's fintech law, which in part seeks a different set of minimum capital requirements for fintech firms. The Mexican Congress approved the fintech law in March, making it one of the first countries in the region to have a regulatory framework for such firms. Secondary regulations should be ready by September, banking and securities regulator CNBV has said previously.
On the cryptocurrency front, the SEC announced that it was extending its deadline to rule on Cboe BZX Exchange Inc.'s June proposal to list and trade SolidX Bitcoin Shares issued by the VanEck SolidX Bitcoin Trust. An SEC decision on the Cboe Global Markets Inc.-owned exchange's proposal could now come before the end of September.
From Aug. 3 to Aug. 10, the SNL U.S. Financial Technology Index rose 1.37%.
A recent report from S&P Global Market Intelligence explores how banks and insurers are embracing fintech innovation. The report looks at recent trends and provides outlooks for the insurtech, digital lending, digital investment management, digital banking, payments and distributed ledger technology sectors. Click here to read the report.