Our primary goal is to help you to understand FinTech and to become more confident and persuasive in your ability to analyze and make recommendations to executives within the finance industry regarding how to react to these changes. This FIRST MOOC ON FINTECH IN ASIA-PACIFIC offered by HKUST presents the views of several professors from the top business school in Asia as well as perspectives from industry professionals. HKUST has been ranked for many years as the number one EMBA program in the world, as the number one Finance program in Asia, and as the top MBA program in Asia by multiple independent rating and review journals and surveys. This course offers the combined strengths of HKUST in Business, Finance, and Technology as one the world's leading academic institutions on an important area of technology and business innovations. For students from outside Asia, this also gives an insight into changes happening in the most advanced FinTech markets of the world, since Asia leads worldwide in FinTech adoption and creative innovations. This course (FinTech Foundations and Overview) is part of the HKUST FinTech specialization, there will be 3 other courses in the specialization including FinTech Security & Regulation (RegTech), FinTech Risk Management, FinTech Innovative Disruption: Implications for Society. The FinTech specialization will be launched in Fall 2018, stay tuned!
2.2: Lending & Personal Finance (Part 1)
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来自 The Hong Kong University of Science and Technology 的课程
FinTech Foundations and Overview
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从本节课中
FinTech Business Applications
The Business Applications of FinTech are essentially the Fin part of the FinTech world, and in this module, we will examine applications across six categories of FinTech, including lending and personal finance, crowd-finding and business financing, payments and retail transactions, equity, trading and investment applications, various types of cryptocurrencies, and banking infrastructure and tools.
与讲师见面
Theodore Henry King CLARKAssociate Professor
Information Systems, Business Statistics and Operations Management Department
Welcome back to our course on FinTech Foundations and Overview.
As we look at business applications of FinTech or the Fin of FinTech,
how does it affect finance markets?
An important area of finance and market
opportunity for FinTech firms is lending and personal finance.
We'll also talk about other kinds of lending like business lending.
But in this session,
we'll talk about the idea of making
loans to individuals or small businesses as an opportunity.
And we see a couple of startups in this space.
One of which pretty well-known is Lending Club.
We'll also talk about Kabbage,
a B2B financing company or a financing of small business.
Credit Karma offering credit services,
credit finance information, as well as, connections for loans.
And E-Loan an early pioneer in this business.
Lending Club was initially one of the first applications on Facebook.
Was an early app,
and it was an unsecured lending platform.
Allowing people to borrow money and allowing others to invest in such loans.
So, it was a peer to peer lending platform.
The nice thing about this lending platform and one of the selling points
of Lending Club is you don't have to loan money to me.
You can loan money to a portfolio of people who are like me.
And so if I were to go to a lending club and say I want to borrow some money,
I could find an investor that says,
"I'll take one percent of his loan and one percent of somebody else's loan."
And Lending Club will then bundle these into loan packages or notes that are
multiple borrowers and multiple investors
who are providing capital to provide this financing.
Therefore, you get the diversification risk reduction.
So, you end up with a safer investment,
a more stable payout,
whereas, one person to one person loans can be highly risky.
Sometimes you get paid off and you might get a lot of interest.
Sometimes you don't get paid at all.
And that can be a disaster if you're just funding one loan with one investor.
Banks wouldn't like to do that.
As one person said,
"If you owe a bank $50,000, the bank owns you.
If you owe the bank $50 million,
you kind of own the bank."
You can tell them.
You want to get paid back,
you got to treat me nice.
So, if you're rich and a very large borrower,
you got a lot of negotiating ability with banks.
And if things go wrong,
you may be able to go bankrupt.
You have credible alternatives but at any rate.
So, in this case,
we're talking about small loans, small investors,
and Lending Club is a way of getting a small investor to be able to take
a piece of a small part loan portfolio with other small borrowers.
Banks traditionally were in this business.
They would take money from small investors and they would give money to small borrowers.
Lending Club disintermediates those banks.
They provide a platform for lenders and investors to get together.
Now in terms of how is this doing.
Well, they've been making a lot of consumer loans,
and they've even gone beyond their original mission to where now they're saying,
"Well, we'll also do other kinds of consumer loans."
You want a car finance?
That's not so good with investors because of the asset-backed nature.
We've got banks that will do that.
Just come to us, we're Lending Club.
We will end the money.
Some of those funds will go into things we'll package for investors.
Some will sell off to traditional banks
because the margins are better and we can do very well with that.
And so, they have a bank that they work with, headquarters in Utah,
that provides them with a platform for packaging loans for other banks.
And so, many loans do go through the banking back in for this Lending Club now.
So, these are not investor loans but they still do
have many peer to peer investor type loans.
And you can pick your portfolio of risk,
you can pick your products,
how much return you want,
how much risk you want,
how much variability you want,
how many borrowers you want within the note that you're taking a piece of.
They've been a pioneer in FinTech,
and they've been very well noticed and have a lot of notoriety,
but some of that's been negative cause they've had
a few problems over the past couple of years.
Don't really need to worry about that.
In terms of the business model,
they've done very well,
and they're making good money.
They've had some management issues and some challenges,
but those don't detract essentially from the success
of what their business model has done as a disintermediation of traditional banking.
Another company taking away business from banks is looking in the small business space
with Kabbage looking at opportunities to raise money to lend to small businesses.
And they came up with this idea and said,
"We want to get this funded by venture capitalists."
And went out and nobody was interested.
They couldn't raise any money.
In the year 2009,
their three founders went out and tried to raise VC money, were unsuccessful.
But they were able to get a large investor to put up a convertible note.
They were able to raise $500,000 that way,
via convertible note or notes,
and they raised $1.5 million from 45 angel investors.
So, a lot of smaller investments, not tiny.
But still, they've raised a lot of capital,
and they were able to make their first 100 loans in 2010.
By the next year,
they were able to raise a lot more money.
They were able to get venture capitals involved because
they started having very good returns.
They also started getting a lot of good press.
Why? Because they were able to make small business loans with
reasonable ability to get repaid and be successful in minutes.
And this was contrasted with people's experience of borrowing
from a traditional bank whereas one small business owner put it,
"I had an idea,
I needed a loan to expand my business.
After three weeks of waiting at my local bank they turned my loan down.
Three weeks of being in limbo,
and they say no. This is terrible.
A friend of mine said try Kabbage.
I went online and I had a loan.
Six minutes, I got financing." That's fast.
Not me, actually, I don't need the financing.
I'm more likely to be the angel investor putting the capital into the business.
But still, very quickly,
got funding for your new business idea.
Now the cost is not cheap.
For that particular loan,
the interest rate was 27 percent a year.
For some loans, it's higher.
Kabbage says in general you should be looking at about 3-4 percent a month.
And you should be looking at about a six-month repayment cycle.
So, these are short-term, high-interest rate,
high-cost loans, but very, very flexible.
And they're willing to look at a lot of things that
firms don't look at, normally in banks.
Kabbage says will cooperate with our partners like UPS, or Intuit,
or other accounting software,,
or delivery systems or payment credit card processing companies.
We want to look at your whole business model and we want to see
how much volume of transactions are you shipping out every week.
How many customers are charging things on their cards with your business?
How is your accounting look?
We'll look at all of that,
and not just what you write on a loan application paper that a bank officer may look at.
Kabbage says lots and lots of data.
This means, as a result,
Kabbage has been able to make $4 billion in
loans to over 130,000 small business customers
using more than a million data points as part of their loan approval cycle.
So, they're able to use lots of data like
UPS shipping data or like your accounting data to make
these decisions for their 130,000 small business customers.
So, more than 10 data points per loan
application of different data sources that Kabbage is able to take advantage of,
not just filling out your application with minor amounts of data.
So, big company, very successful, raised a lot of money.
In terms of FinTech,
Kabbage is now number 10 on KPMG's FinTech list or FinTech 100 list. So they're big.
They're also on the top 50 Disruptor list for
CNBC of companies that are disrupting industries,
transforming the finance industry.
For several years now,
I believe at least three years in a row they've been on Inc
500 fastest growing firms in America.
They are now being funded by and receiving a credit from, or loans from,
or investments from Credit Suisse,
Ing, Softbank, and many,
many other large financial institutions who are saying, "Hey,
we'd like to participate in some of this great success you have."
That's kind of intriguing that the banks who are
being dis-intermediated and being threatened by Kabbage are saying,
"We love this idea.
We want to participate.
We want to be part of this. We want to work with you."
Because Kabbage is generating a lot of profit.
They're generating a lot of success,
they're making loans fast.
Customers are happy, but they're also paying pretty good interest and they're paying.
So, Kabbage is better at assessing risk than a local bank loan officer,
and better at getting the customer in the door.
Banks are saying, "We like this and we like putting our capital
to work in your business model." So that's intriguing.
Another credit related firm or lending payment system firm is Credit Karma.
Credit Karma doesn't provide loans directly to consumers.
All they do is help you out with your credit.
They provide you information.
So, as a consumer,
you can go get a free credit report from Credit Karma.
You can also get some other value added services that
will help you improve your credit score,
or understand your credit score,
or protest something that's wrong.
So, Credit Karma will also provide you with
some consulting or additional value added services if you wish to have that.
But if your credit is great,
your credit score is great,
they will also work with you and say,
"Would you like a credit card?
Would you like a mortgage loan?
Would you like a car finance loan?
I assume you were looking at your credit score for some reason.
Would you like some help or links to
good companies that might be able to provide you great rates on loans?"
Because Credit Karma has a good reputation and
hasn't charged anything to its customers and they're feeling good about it,
they're feeling happy with it.
When Credit Karma makes these targeted ads or offers of helping you find financing,
it doesn't feel as ad or
as commercial in its nature as do some banked commercials or ads,
you get a commercial.
Would you like a mortgage and you're watching a YouTube video and you say,
"Go away. Skip ad."
With Credit Karma, you're looking at your credit report and you're now thinking,
"I wonder what it would cost me if I
wanted to borrow money to buy a car," and Credit Karma says,
"Have you been wondering about buying a car?
We have some great lenders that might be able to help you with that."
Oh yeah. I'll click there.
"What do you have in mind? What do you advise? What do you suggest?"
The banks love Credit Karma because they're getting
a lot of information and a lot of filtering of the front-end to the customer.
So, the banks are getting better referrals,
better leads than they would from just a general ad.
They're getting something much more valuable from credit card,
and they're willing to pay for that.
The consumers are getting
a more customized advertisement that they're happier with than a general ad.
So, Credit Karma is doing very well at making money.
They're doing this through referral fees
and through banks being willing to pay for leads.
The final company I want to talk about is a company that
has been a pioneer and a leader in this industry.
They started in 1997 when the internet wasn't young.
Now the internet itself wasn't young.
I shouldn't say the internet was young,
the internet has been around a long time in one variation or another.
But the web was young.
The internet as a visual graphic-based entity rather than a text-based entity was young.
So they were an early e-commerce like platform in the early days of web commerce.
So 1997, they started up.
They had a very simple value proposition that they would give you loans easier, faster,
simple, particularly for mortgages and/or auto financing.
They were very easy to work with and very large.
They got some funding from Softbank, from Yahoo,
from Sequoia Capital, and that helped them get started.
In the first year they raised $25 million in venture funding.
Eventually, by 1998, they had received
an offer from Intuit to buy their company for 130 million,
and that's a big increase in valuation.
Now, we're talking about a four times jump in value in one year,
400 percent a year.
That's pretty good return. They turned it down. More interested.
They did raise 25 million or 23 million,
I think it was from Yahoo for one quarter of their company,
which was a lower valuation but it allowed them to stay independent.
Eventually, they did sell the company,
the whole company to Popular Inc,
a bank holding company in 2005 a couple of years later for 300 million.
Imagine this is after the dot com crash.
So even though not all companies were
now magically valued at big numbers like they might have been in 1998.
By 2005, we're well past the dot com crash and they're still selling out for
a huge multiple over
their initial listing of their company and
raising of capital over their private placements.
So, big gains for the founders for the company.
So, this is a success,
a cash out for an early pioneer in payment systems, eLoan.
Now, you may be thinking,
"But I've never heard of eLoan."
Yeah, they went away in 2009.
They went away before there were very many smartphones out there.
Before we have apps like we do today of Apple phones,
or Samsung phones, or our Google Play, they were gone.
Why? Because popular bank who bought them
preferred to move all the direct banking and direct lending under their own name.
So now, it was Popular Direct not eLoan.
So, it's just the bank's front-end for originating loans electronically.
That bank paid a lot to buy this,
but they wanted to buy the capabilities, the technologies,
the ideas, the ability to assess loan risk in an automated way, and they got it.
They got it, they brought it in-house,
they turned it into their own brand,
and the FinTech startup is gone.
That doesn't mean FinTech is gone.
That means this particular startup was acquired by a bank,
the founder made money,
the early investors made money,
the users got great service,
and then it went out of business as a bank took over that business.
But then other firms started up in this space like our Lending Club,
or like Circle Fund in the UK,
or like Credit Karma and linking in to
sell your bank lead information to financial service firms.
So, many firms in this space,
there are lots of startups in this space,
literally hundreds of startups. Some are big.
When eLoan was around,
it was more than a quarter of the entire lending space by the time it was bought out.
So big firms, some big successes sometimes merged into existing financial services firms.
Thus you may say,
the bank's view of this may be like Mark Twain once said famously,
"Reports of my death have been greatly exaggerated."
Reports of the death of banks may well be greatly exaggerated.
But we may see FinTech firms getting merged in or purchased
by large financial institutions and becoming part of those firms. Thank you.
