LendIt 2016

For this week’s post, we are going to talk about a related but somewhat tangential topic relative to our usual small business lending. I had the opportunity to attend the LendIt conference in San Francisco this last week. It was a two day event at the Marriott Marquis south of Market Street in the city.  I attended to get a sense of what the industry is thinking and where they appear to be moving.  It is a great event and one that I’d suggest you attend if you work in the marketplace lending space. What I hope to do in the following few paragraphs is give you an idea of what it is like to attend, provide overview of the benefits attendees might see and how you might still, regardless of how long it’s been since the conference, see some benefits yourself.  I’ve also included a few recommendations or improvements I’d like to see in future conferences and you can feel free to add more in the comments.  Maybe Peter will even swing by to see what we’ve written!

 

The History of the Conference

This conference is run by Peter Renton and his team. They hold three conferences each year, one in the UK, one in the US which alternates between New York and San Francisco and a third they’ve added this year in Shanghai, China.  Peter is the influential blogger and investor who has championed the Marketplace Lending space since 2008.  He offers great information and access to other influential people in the space through his Lend Academy site and podcasts.  He provides a brief writeup of himself here as well.  

The Newbie

This was my first LendIt conference. They have been going on since 2013 and have a grown significantly in size and scope each year. This year they announced that over 3,500 were in attendance, far surpassing last year’s 2,500.  Initial impressions are overwhelming. The conference takes up multiple levels of the large Marriott Marquis, with a couple of main presentation rooms, numerous small breakout rooms, and over 40,000 ft.² of expo space.  It is well run, with plenty of staff to guide you, answer questions and address issues. The sessions are packed in the mornings with well known speakers in the main room and then numerous themed tracks in the afternoon spread throughout the various rooms.  On top of it all, the food is plentiful and pretty good.  

Conference Overview

The conference is centered around FinTech and specifically the U.S. lenders, service providers and their ecosystem.  But it’s not strictly limited to that as there was at least one session on Insurance Tech and numerous others on topics like automated wealth management platforms and challenges and successes of international markets in Europe and Asia.  The largest sponsor was Lending Club with a few other consumer and small business lenders occupying the next sponsorship tier.  While there was a lot of great information to glean, and I feel like I learned a lot more than I previously knew, a significant focus was on the FinTech investors that provide funding to these companies whether it’s through securitizations or direct lending to the borrowers through the platform.  

The initial model for many of these companies and the model which still dominates in Europe and Asia is a true peer to peer model, where individuals like you and me choose to fund all or a portion of the loans that are requested by potential borrowers.  As seen in the graph below, the US market has transitioned to a much greater share of loans being funded by institutional investors.

Mix of funding sources for marketplace lending in 2015 by region by lending type
Mix of funding sources for marketplace lending in 2015 by region by lending type

Institutional investors are those that invest money on a larger scale than individual investors. These were typically hedge funds and private equity funds looking for better returns, but now mutual funds are setting up vehicles for their investors. Even some corporations and banks are getting into the act of funding these loans.  Citi and Lending Club as well as Santander and Lending Club  are a couple of examples. Because of the growth of this funding method, and the ease at which many FinTech companies have found opportunities for large securitizations or dedicated investment lines available to fund loans, a significant portion of the discussion was centered on this side of the business.  While that may not be as interesting for someone like me who is from the lending side, the fact that funding is readily available and is profitable for both the investors as well as the the lenders is good for borrowers.  More credit is now available and we should continue to see growth in the number, scale and scope of loans that are being made as long as it stays that way.  

Day 1 – Excitement and Promise

The focus of the first morning of presentations was on the current state of the marketplace lending market.  One of the hallmarks of the industry, or at least of the most visible member of the industry, Lending Club, is transparency.  It is a key aspect of their corporate persona which they foster and push the rest of the industry to follow.  Renaud Laplanche, the first presenter and their CEO, provided an overview of where they came from and where they were going with a lot of good insights.  He was followed by Peter Renton with a brief look at the market from his, more independent perspective.  The presentation to follow was from Cambridge University, University of Chicago and KPMG (the source of the slide above) which summarized a research report that they announced and published that morning.  Following that was the CEO of Avant who circled back to the benefits and opportunities in marketplace lending from the demand side.  The after-break sessions provided an interesting overview of the breadth and depth of the Chinese FinTech market which appears to be even more robust (and chaotic) than the US market.  That was followed by a panel and a presentation about the capital sourcing side of the market (i.e. where the companies get their capital) that was more interesting for investors, but is still key for understanding the growth of the industry.

Lunch provides a break between the earlier general sessions lead by CEOs and other key market participants and the afternoon sessions which are less general and potentially more interesting.  There are workshops and deep-dive tracks which are held alongside some more targeted discussions in the two largest conference rooms.  (You can see the detailed agenda here.)  The direction and breadth of information available is fantastic.  The deep dive sessions lasted the rest of the afternoon and covered real estate lending, small business lending and consumer lending topics.  The workshops had themes like ‘Fund Manager Insights’, Alternative Investing’, ‘Wealth Management’ and ‘Credit and Underwriting’ among others.  The main two halls covered topics within ‘Most Interesting Topics in Lending’ and ‘Innovations Shaping the Future’.  I found the latter to be more interesting (irrespective of the theme title) as they covered the importance of mobile, the interests and behaviors of Millennials and what a downturn in the market may look like.  

 

I can’t say enough about how much information and great perspectives are available, but did have a couple of small issues with the way that things worked.  The first was related to the timing of each of the afternoon sessions.  Some of them lasted 15 minutes, others lasted 20 or 30 or more and they weren’t synchronized across tracks.  So if you wanted to attend a session in one track and then a session in a different track you either would have missed some early content if the second track started earlier than the first ended, or alternatively you had to wait for the second to start.  Additionally, while they record and provide the videos from the main room and demonstrations here, the smaller room presentations aren’t recorded.  The second issue that I experienced had to do with the size of some rooms.  There was a presentation on underwriting that had the phrase ‘machine learning’ in the title, which garnered a lot of interest, such that I and 60 of my closest friends wanted to attend.  However, it was scheduled in a very small room and a number of us were turned away.  Unfortunately, I didn’t get to see that presentation, but what followed was actually a testament to one of the strengths of the LendIt team.  We were erroneously sent to the information booth after being told that the presentation would be simulcast in an area near there.  That ended up not being the case and myself and the 5-10 people who were really interested in seeing it, but couldn’t get in, were a little upset.  The LendIt team was very helpful in tracking down what was truly being simulcast and what was not and then were very apologetic that we had received poor guidance. This helpful attitude was great to see and not always common at conferences.  In the end, this positive experience definitely helped to offset the two negative ones mentioned previously.    

Day 2 – Does it get better?

The second day was much like the first with a couple of exceptions.  The primary exception was the talk by Peter Thiel.  Peter is one of the co-founders of PayPal.  He is also a venture investor and author and has observed a lot in the Silicon Valley startup environment.  

He gave a 20 minute key-topic summary of his book Zero to One.  I’m sure the current and prospective entrepreneurs who were in the room at the time got a lot out of his thoughtful talk about the differences in types of competition.  I thought it was riveting and insightful and highly recommend that anyone running a small business or planning to start one watch the video here as well as read his book.  He provided a perspective that he takes as an investor and what his experience has shown makes a company very successful.  He gave thoughtful examples including a few great ones from his days at PayPal.  

Two other potentially interesting presentations were regarding the regulatory environment.  Regulation of the banking industry and the marketplace lending sub-industry are very hot topics.  So I’m sure a lot of participants were interested to hear the perspectives of the regulators who were there to speak, hoping to engage in a discussion.  However, both speeches were disappointing.  The first was from John C. Williams about policy and regulations in FinTech.  Mr. Williams is a member of the Federal Reserve’s Board of Governors.  Unfortunately, he wasn’t as informative as I would have liked.  He noted that his perspective was more anchored in the broader economy due to his position on the Board as opposed to specific policy that might influence the industry.  The second was a presentation from Jeff Langer of the Consumer Finance Protection Bureau (CFPB) who highlighted the functions of the CFPB as well as some of the tools that they provide to consumers.  Like his predecessor, this presentation fell short of my expectations .  There were a couple of other regulatory related sessions that would have been interesting to attend both on Tuesday as well as Monday.  However, I wasn’t able to go as there were other more interesting sessions at the same time. It is a shortcoming of having a conference packed with presenters and information.

As I mentioned, a definite underlying theme through the whole conference was regulation. Many presenters within the industry defended their companies from naysayers who argue that the new industry has only seen light regulatory touch.  Their defense is that they are already subject to many of the same regulations as banks.  But, having worked in the “old school” banking industry and knowing the demands that regulators put on banks, I also believe there is a gap between new and old.  One of the presentations on this point was titled, “Marketplace Lending: Just Regulatory Arbitrage?” asking if there is a significant difference in regulatory focus and related overhead costs that favor these new companies.  I believe there is a gap between the two although I don’t think it’s unfair.  I’m happy for the new entrants to not only disrupt the large banks that dominate the industry, but also to provide the regulators alternatives to consider.  Too frequently, over the past decade, regulations have hit the banking industry hard.  These smaller companies offer an opportunity for the regulatory oversight regimes to consider the regulations they enforce against real business opportunity.  It’s something that should be incorporated more thoughtfully with the classic banking industry as well.

My Wish List

The conference did a pretty good job of connecting people to the sessions and potentially each other with an app that allowed an attendee to choose sessions and set up their own calendar.  It also provided a twitter-like feed for attendees to chat (and advertise) as well as weigh in on interesting topics.  Additionally, it had an index of all attendees and some info about each which a user could view their LinkedIn profile.  What I would like to see in the next iteration would be more location aware tech, where the interconnectivity would also scan my LinkedIn network and let me know who in my network was going to attend and ideally where they were (among the 3,500 people!) at the conference.  I also thought that there could be better integration with announcements and studies as the report by KPMG, University of Chicago and Cambridge University was not easy to find online once it was announced.  Finally, there seemed to be a lot of interest from people just to learn about the industry as well as the technologies involved.  I think more educational sessions would be welcomed by many.  I would think that there would be interest from some of the folks who are already speakers to do the training or possibly others who offer related training programs.  The two that come to mind specifically, were related to the interest in machine learning and ‘leading edge approaches’ that were well oversubscribed.  There is a Stanford Professor who teaches about machine learning on Coursera that might be convinced to spend a few hours explaining more about what underpins this technology in companies.  Additionally, one of the panelists of the aforementioned session consulted in the area of credit modeling and talked about differences in levels of sophistication that may interest many.  

Conclusion

To wrap up my thoughts on the conference, I thought it was very interesting and could be even more valuable for those working in the space directly. As an attendee you have to opportunity to hear and learn from the industry’s heavy-hitters and strategic thinkers.  They provide excellent insight into where their companies are today as well as to where they feel the industry is headed.  Additionally, there is a lot to see outside of the main rooms with the option to jump into different presentations on different tracks depending on your specific interests as well as explore the companies in the expo room, getting insight into their products and services.  Finally, the networking and business development opportunities are immense with almost too little time to meet and exchange information and ideas.  However, for those of us that are more tangentially involved in the marketspace or just have an ‘interest’, you can get a lot from watching the main sessions live (or recorded) as Peter Renton and the LendIt team are solidly in line with the industry’s transparency and generously provide that opportunity without charge.  In the end, I am very glad I went, learning a lot about the depth and breadth of the industry as well as enjoying the exciting environment that comes from the energy that many people and companies in the space have.  I may even go again, if the situation works out, but who knows where we’ll all be in 2017!

Woody

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