The State of Consumer Finance: Why the Time is Now for Marketplace Lending AL GOLDSTEIN, CEO AVANT

Transcription

1 The State of Consumer Finance: Why the Time is Now for Marketplace Lending AL GOLDSTEIN, CEO AVANT

2 The lending industry is overdue for disruption Potential for Disruption Low High Mortgage SMB Loans International Remittances In-Store Payments Digital Payments Wealth Management Personal Loans Deposits Far-Out Timing of Disruption Near-Term

3 Companies are being established to address various product segments Consumer Education Small Business Real Estate

4 Investors believe marketplace lending can create substantial disruption $2,500 Venture Capital Funding for Lending Startups $2,366 $1,875 $1,250 $1,003 85% of institutional investors are interested $625 $179 $320 $301 $315 $

5 But, headwinds have emerged

6 Systemic risk exists for large tech startups as investors question valuations

7 Accessibility of the capital markets has diminished

8 Regulatory uncertainty remains a key concern

9 Oil Yet, the environment for the middle class consumer continues to improve 10.0% 7.5% 5.0% 2.5% Chart Title Unemployment Rate ~$37.00 / Barrel = $700 annual savings 0.0% Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Household Debt Service Payments to Disposable Income 9.0% 10.0% 11.0% 12.0% 13.0% 14.0% Jan-84 Jul-87 Jan-91 Jul-94 Jan-98 Jul-01 Jan-05 Jul-08 Jan-12 Jul-15 Jan-19

10 And credit performance shows no sign of deterioration 18.0% 13.5% 9.0% 4.5% 0.0% Q Q Q Q Q Q Q Q Q Q Avant Cumulative Gross Charge-Off Rate by Cohort (%)

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

12 What went wrong in 2008?

13 Favorable capital markets resulted in high corporate leverage $3.0 $2.3 Dollars in Trillions $1.5 $0.8 $ Debt Equity

14 US household debt reached an all-time high of $12.7 trillion in % 120% 100% 80% 60% 40% Mar-59 Jul-62 Nov-65 Mar-69 Jul-72 Nov-75 Mar-79 Jul-82 Nov-85 Mar-99 Jul-02 Nov-05 Mar-09 Jul-12 Recessions Household Liabilities as a % of Disposable Income

15 Financial systems became increasingly complex Structured Credit Collateral RMBS CMBS ABS CMO CLO CDO CDO 2 CDS 600, , , , Other Structured Credit

16 2008 was the worst year for the S&P 500 since the Great Depression 2,500 1,875 1,

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

18 Lester Anderson HOMESTEAD, FL 2007 $55,000 salary Married with kids 8 years employed FICO Score: Compact Car $5,000 Credit Card Limit ABC BANK $175,000 Mortgage COMMUNITY BANK $5,000 Car Loan CARS R US *This is a fictitious character, not an actual customer, created and used to illustrate a typical customer of Avant

19 Lester Anderson HOMESTEAD, FL 2010 $55,000 salary Married with kids 11 years employed FICO Score: Compact Car $5,000 Credit Card Limit ABC BANK No Refinancing Options No Car Loans Available *This is a fictitious character, not an actual customer, created and used to illustrate a typical customer of Avant

20 47% of Americans < 700 FICO ~150 million people

21 How Marketplace Lending is Bridging the Gap

22 Demand Technology Capital

23 Demand

24 US consumer credit market presents a $12 trillion opportunity Personal $315B Card $659B Auto $875B Student $ 1, 111 B Mortgage $8,691B

25 ~$22 trillion consumer credit opportunity across US and Europe

26 Borrowers find that marketplace lenders better meet their needs Net Promoter Score

27 The middle income consumer remains largely underserved Technology & Analytics Capabilities Low High Super Prime Consumer Credit Range Near Prime

28 Non-prime consumer losses are more resilient through downturns Super- Prime > % 0.7% 3.00x Prime % 4% 2.60x Near- Prime % 10% 1.75x Subprime < % 28% 1.40x

29 Capital

30 $1.2 Trillion The amount of additional capital US banks are required to maintain

31 Portfolio returns of the 80s and 90s may not be repeatable 13.8% Average 5-Year Return (%) 5.2%

32 Investor interest has fueled growth across the industry Loans Purchased ($Bn) Total Origination Volume $4.0 $3.0 $ $150 Bn $1.0 $ Individuals Institutions $15 Bn

33 Technology

34 100% Online & Mobile

35 Real Time Approval & Next Day Funding

36 Regression is an outdated method of credit modeling

37 Machine learning models allow quicker, more accurate credit decisions

38 40.0% Marketplace lenders are more effectively pricing risk Credit Risk is Priced Tight on Cards 20.0% Marketplace Lender Yields Outpace Bonds 30.0% 28.8% 15.0% 17.0% 20.0% 18.0% 10.0% 9.0% 12.6% 10.0% 5.0% 4.0% 1.0% 0.0% Average Credit Card Penalty Rate Average Credit Card Rate Average Digital Lender Rate 0.0% 3-Year Treasury Bloomberg US High Hield

39 How are Banks Responding?

40 Partnership versus competition

41 Not only Avant

42 Significant partnerships on capital side

43 The Avant Difference

44 Products Channels Online / Mobile POINT OF SALE P O W E R E D B Y Retail Auto Healthcare Home Customer Tools

45 Differentiated funding model with recurring revenue ~ 50% On-Balance Sheet ~50% Off-Balance Sheet Bank Warehouse ABS Securitization New Product Facility Forward Flow Managed Fund Vehicles Skin in the Game & Random Allocation

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

47 Complementary partnership offering Consumer Credit Spectrum 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 No Cannibalization Risk Multi Product (Consumer, Auto) Alignment of Interest

48

49 So how does this impact Lester?

50 Lester Anderson HOMESTEAD, FL 2016 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

51 Great consumer experience driving long term adoption

52 lowering the costs and barriers of borrowing