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Digital lenders focused on partnerships at key conference


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According to Market Intelligence, April 2023

Digital lenders focused on partnerships at key conference

Severaldigital lenders kicked off this year's LendIt USA conference by announcing newpartnerships.

Digitallenders, a broad category that includes marketplace and peer-to-peer lenders,have focused on partnering with banks after initially proposing a modelthat would disrupt the banking industry. At LendIt USA, held this year in SanFrancisco on April 11 and April 12, digital lenders from around the world aregathering, with several companies using the conference to announce news.

Justbefore the conference, Avant announced a partnership with Regions Financial Corp., which will offer Avant'splatform to RegionsBank customers in need of unsecured personal credit. Regions hadalready announced a partnership with Fundation Group to offer small businessfinancing.

AndLoanHero, a digital lender focused on point-of-sale financing, on April 11 announceda marketing partnership with AAMCO. The automotive repair chain currentlyoffers financing through Synchrony Bank, but cashiers only offer that as a lastresort and many of AAMCO's customers fail to qualify, said Derek Barclay,co-founder and president of LoanHero.

Typically,customers who opt for point-of-sale financing end up selecting a different typeof lender altogether — no-credit-check lenders who charge exorbitant rates,well over 100%. LoanHero's financing starts at 13.99% and averages around 20%,Barclay said in an interview.

Thecompany maintains a balance sheet and funds roughly 70% of its loans in-house.But Barclay said he is pushing to lower that figure and bring in more bankingpartners to offer their products through LoanHero's platform.

"Ultimately,we want to become LendingTree for point-of-sale," Barclay said.However, to improve the company's sales pitch to banks, growing volume is justas important as cultivating relationships, he said.

"Theygo hand-in-hand," Barclay said. "Building out the product in theplatform will allow us to get more business by going out and saying, 'Look,there's a lot of volume coming through this platform.'"

Barclaysaid LoanHero had originally projected to do $60 million in origination volumein 2016; first-quarter figures suggest the company will easily exceed thattarget.

LendItpress representatives issued press releases from 24 different companies onApril 11 to media members covering the event. Most of the news related tointernal developments, such as new product offerings or milestones, includingLendKey's announcement that it had reached $1 billion worth of originations.

Somecompanies announced expansion into new markets. Blackmoon Financial Group, aEuropean company, announcing the launch of U.S. operations with $130 million ofcommitted capital. Similarly, Finland-based peer-to-peer lender Fellow Financeannounced an expansion into Poland.

Othercompanies unveiled notable company developments. LendStreet, a platform focusedon debt restructuring, announced it had secured a $28 million credit facilityfrom FLOCK Specialty Finance. National Funding, a small business lender andfinancial technology company that predates peer-to-peer lending, announced thatTorrie Inouye would be the company's president. National Funding billed Inouyeas the first female president in the industry.

Butpartnerships have garnered the most attention as the digital lending spacematures. Along those lines, LendAcademy Investments LLC announced a strategic partnership withEmerald Asset ManagementInc. P2Binvestor, a lender for asset-based working capital, announcedan institutional investment relationship with MW Eaglewood Americas LLC.

Withmore than 3,500 attendees, LendIt has become a prime place for digital lendersto announce partnerships and help develop new ones. However, the crush ofannouncements is generally a marketing ploy, as opposed to a function of theconference, said Todd Baker, managing principal for Broadmoor Consulting LLC, abank consulting agency attending LendIt.

"Thesethings can't be pulled together quickly," Baker said. "Things mightstart here and end here, but the actual negotiation takes some time, andthere's not enough time in a three-day conference."

Bakersaid partnerships with retail banks appeared to be the focus among digitallenders. Digital lenders are becoming increasingly concerned about the cost ofacquiring customers, and bank partnerships allow access to a broad range ofpotential borrowers.

However,banks are wary to lose customer relationships, increasing the popularity oflending-as-a-service, or white-label solutions. These partnerships, such asJPMorgan Chase &Co.'s deal with OnDeck Capital Inc., allow banks to use the digitallender's platform while presenting the loan as a bank product to the customer.

"It'sreally a reflection of banks' concerns about who owns the customer," Bakersaid of the increasing popularity of white-label partnerships.