Peer- to- Peer Lending and the Future of Co- Opera5on

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1 Peer- to- Peer Lending and the Future of Co- Opera5on Sean Geobey (Pending) Assistant Professor, University of Waterloo School of Environment, Enterprise and Development Senior Associate MaRS Solu5ons Lab May 3, 2015

2 Example: Pebble Watch Customizable wristwatch University of Waterloo / Palo Alto, CA $100,000 goal $10,266,845 raised in 2012 Pledges of $99+ will receive a Pebble Watch Second round: $20,338,986 raised in 2015

3 Agenda What are Crowdfunding and Peer Lending? Community development, consumer and business Industry leader profiles Strategic opportuni5es

4 Why Crowdfunding and Credit Unions?

5 Individual funders select a fundee to support. Dollar amount usually has to exceed a threshold of the fundee s ask Funder 1 Fundee Funder 5 Funder 2 Funder 3 Funder 4 Crowdfunding Pla[orm Crowdfunding pla8orm provides the marketplace for fundees and arranges the financing

6 Contribu5on Reward Pre- Purchase Equity Peer- Based Lending Over $2.7B in funds raised in 2012 from crowdfunding $1.2B was in peer- based lending

7 Community Development Consumer Lending Small Business Lending

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9 Member 1 Member 2 Member 3 Member 1 Member 2 Current Credit Union Community Giving/CSR Contribu5on, Reward or Pre- purchase pla[orms could allow members to directly allocate credit union community development funding Credit Union Crowdfunding Pla[orm Project 1 Project 2 Project 3 Project 1 Project 2 Member 3 Project 3

10 Loan security provided by a separate financial ins5tu5on Fundee Financial Ins5tu5on Loan Provided minus fee Loan request Crowdfunding Pla[orm

11 USA Peer- to- Peer Lender Market Share, % 6.2% 9.0% 36.3% 43.5% Prosper.com Other

12 Lending Club Loan Issues Sources: lendingclub.com Growth in ins5tu5onal investors now 60-70% in large providers Lender oversupply in 2014 over half of Lending Club loans filled within 3 hours

13 1,230,000 loan applicapons made $13,450 average loan request 1,049,000 loans rejected 610 average rejected applicant credit score Average work experience under 1 year AutomaPc rejecpons: Debt- to- income ra5o over 25% (excluding mortgage) Average work experience under 1 year No Social Security Number Under 640 credit score Under 18 years of age 181,000 loans made (15%) $73,000/year average income $13,130 average loan granted Average interest rate of 15%

14 Type of Investment Refinancing 57% Credit Card Payoff 21% Business 1% Other 21%

15 Value of SME Loans by Type of Financial InsPtuPon in Canada, 2011 Domes5c Banks 49.2% Credit Unions, Caisses Populaires 17.4% Financing Companies 14.7% Other Banks 10.0% Insurance Companies and Por[olio Managers 8.6%

16 UK, 2012 $816M Consumer $1117M Business United Kingdom alterna5ve investments include both robust SME and consumer lending USA (projec5on) $5,106M Consumer $6,990 Business Canada (projec5on) $557M Consumer $769M Business Consumer market already exceeds this; SME market much smaller Less than $30 million in peer- to- peer loans in total

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18 The 800- pound Gorilla The Also Ran The Offline Player The Canuck

19 Profile: Current: June 2014

20 Profile: Current: June 2014

21 Profile: Residents of Nevada are not eligible for a refinance loan at this Pme, and variable rate loans are not offered in Minnesota and Tennessee.

22 Profile:

23 Strategic OpPons Low Engagement Ignore Crowdfunding Become Ins5tu5onal Investors Partner with Exis5ng Pla[orms Develop New Pla[orm High Engagement

24 Strategy 1: Ignore Crowdfunding Scenarios Avoid the pop of a new credit bubble Face niche market displacement

25 Strategy 2: Become Ins5tu5onal Investors $

26 Strategy 3: Partner with Exis5ng Pla[orms Credit Unions Provide New lenders New borrowers Offline networks Pla8orms Provide Investment vehicles Borrowing vehicles Ease- of- use How to Approach? Bargaining as a whole => clout of sector vs Bargaining one- by- one => flexibility

27 Strategy 4: Develop new pla[orm Between non- credit union members To or from credit union members Within credit union system Within a credit union

28 Ques5ons

29 @sgeobey

30 Lending Club

31 Prosper & Lending Club Structure Website Lending Club (publicly traded company, 7.15B mkt cap) Bank WebBank, Utah- based industrial bank, issues loans for both Lending Club and Prosper Holding Company Por[olio Financial Servicing Company holds Lending Club and Prosper loans in case either site goes under to maintain the lender- borrower rela5onships Uses debt collec5on prac5ces if a loan defaults