The State of Consumer Finance: Why the Time is Now for Marketplace - - PowerPoint PPT Presentation

The State of Consumer Finance: Why the Time is Now for Marketplace Lending

A L G O L D S T E I N , C E O AVA N T

The lending industry is overdue for disruption

Potential for Disruption Timing of Disruption

Far-Out Near-Term Low High Mortgage International Remittances In-Store Payments SMB Loans Wealth Management Digital Payments Deposits Personal Loans

Consumer Education Real Estate Small Business

Companies are being established to address various product segments

Investors believe marketplace lending can create substantial disruption

Venture Capital Funding for Lending Startups

85% of institutional investors are interested

But, headwinds have emerged

Systemic risk exists for large tech startups as investors question valuations

Accessibility of the capital markets has diminished

Regulatory uncertainty remains a key concern

Yet, the environment for the middle class consumer continues to improve…

Chart Title

Unemployment Rate Oil ~$37.00 / Barrel = $700 annual savings Household Debt Service Payments to Disposable Income

And credit performance shows no sign of deterioration

Avant Cumulative Gross Charge-Off Rate by Cohort (%)

Nevertheless, some compare the rise of marketplace lending to the period leading up to 2008…

What went wrong in 2008?

Favorable capital markets resulted in high corporate leverage

Dollars in Trillions $0.0 $0.8 $1.5 $2.3 $3.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Debt Equity

US household debt reached an all-time high of $12.7 trillion in 2008

40% 60% 80% 100% 120% 140% M a r

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9 J u l

• 6

2 N

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5 M a r

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9 J u l

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2 N

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5 M a r

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9 J u l

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5 M a r

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9 J u l

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M a r

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2 Recessions Household Liabilities as a % of Disposable Income

Financial systems became increasingly complex

150,000 300,000 450,000 600,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Other Structured Credit

Structured Credit Collateral RMBS CMBS ABS CMO CLO CDO CDO2 CDS

2008 was the worst year for the S&P 500 since the Great Depression

During 2008 & 2009, nearly 10% of Americans lost 50+ points of FICO It can take nearly 2 years to recover a loss this severe

$5,000 Credit Card Limit

ABC BANK

Lester Anderson

H O M E S T E A D , F L 2 0 0 7

$175,000 Mortgage

COMMUNITY BANK

$55,000 salary Married with kids 2002 Compact Car 8 years employed FICO Score: 700 $5,000 Car Loan

CARS R US

$5,000 Credit Card Limit

ABC BANK

Lester Anderson

H O M E S T E A D , F L 2 0 1 0

$55,000 salary Married with kids 2002 Compact Car 11 years employed FICO Score: 650

No Refinancing Options No Car Loans Available

47% of Americans < 700 FICO

~150 million people

How Marketplace Lending is Bridging the Gap

Demand Technology Capital

Demand

US consumer credit market presents a $12 trillion opportunity

Card $659B Mortgage $8,691B Student $1,111B Auto $875B Personal $315B

~$22 trillion consumer credit

• pportunity across US and Europe

Borrowers find that marketplace lenders better meet their needs

Net Promoter Score

10 20 30 40 50 60 70 80 90 100

The middle income consumer remains largely underserved

Technology & Analytics Capabilities Consumer Credit Range

Super Prime Near Prime Low High

Non-prime consumer losses are more resilient through downturns

1% 4% 5% 10% 28% 17%

3.00x 2.60x 1.75x 1.40x

Super- Prime Prime Near- Prime Subprime > 770 710 - 770 650 - 710 < 650

0.2% 0.7%

Capital

$1.2 Trillion

The amount of additional capital US banks are required to maintain

Portfolio returns of the ‘80s and ‘90s may not be repeatable

Average 5-Year Return (%)

1980 - 1999 2000 - 2013 5.2% 13.8%

Investor interest has fueled growth across the industry

$0.0 $1.0 $2.0 $3.0 $4.0 2008 2009 2010 2011 2012 2013 2014 1.7884 1.6244 0.8154 0.3325 0.1533 0.0607 0.0897 Individuals Institutions

Loans Purchased ($Bn)

2025 2015

$15 Bn $150 Bn

Total Origination Volume

Technology

100% Online & Mobile

Real Time Approval & Next Day Funding

Regression is an outdated method of credit modeling

Machine learning models allow quicker, more accurate credit decisions

Marketplace lenders are more effectively pricing risk

Credit Risk is Priced Tight on Cards

Marketplace Lender Yields Outpace Bonds

How are Banks Responding?

Partnership versus competition…

Not only Avant

Significant partnerships on capital side

The Avant Difference

P O I N T O F S A L E

Retail Healthcare Auto Home

O n l i n e / M o b i l e

Products Channels Customer Tools

Differentiated funding model with recurring revenue

~ 50% On-Balance Sheet ~50% Off-Balance Sheet

ABS Securitization New Product Facility Bank Warehouse Forward Flow Managed Fund Vehicles

Skin in the Game
 & 
 Random Allocation

No up-front fees = Transparent products
 that are easy to understand

Consumer Credit Spectrum

550 850 700 800 750 650 600

• Low Cost Digital Platform
• Engineering and Technical Depth
• Machine Learning Underwriting
• Marketing Analytics & Automation
• Powerful Brand & Branch Network
• Low Cost Capital & Industry Expertise
• Loyal & Diverse Customer Base
• Customer Data & History

✓ Reduced Acquisition Costs ✓ Multi Product (Consumer, Auto) ✓ No Cannibalization Risk ✓ Alignment of Interest

Complementary partnership offering

So how does this impact Lester?

Simple Application

Check rates in 6 minutes or less without impacting credit score

Fast Service

Real-time automated loan approvals and next business day funding

Transparent Policies

What you see is what you get

Lester Anderson

H O M E S T E A D , F L 2 0 1 6

Great consumer experience driving long term adoption…

lowering the costs and barriers of borrowing

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