Consumer credit is broken. The economy has improved, if slowly, since 2008. The cost of funds is low. Even so, many consumers still have difficulty finding loans to help pay for new cars, homes, or education. According to the Federal Reserve, financial institutions and securitized pools of capital drove more than $340 billion in outflows from the consumer credit markets in 2009 and 2010 and, for the most part, those capital sources have not come back. Large financial institutions appear more focused on trading on their own accounts or conserving capital rather than lending to consumers. Smaller institutions like credit unions and community banks often lack the scale, systems, or know-how to provide the variety of loans that larger banks have traditionally offered. And new peer-to-peer lenders are still small in number and experience some of the same issues as smaller lenders. The federal government has been the only lender to step into these credit markets in a significant way since the financial crisis, but few of us, I suspect, believe that such intervention is sustainable.
That’s where LendKey comes in. LendKey offers a turn-key lending platform. Using LendKey’s solution, a small bank or credit union can start offering a new type of loan in a matter of weeks, without hiring a new team or building or buying new technology. LendKey’s platform enables origination, underwriting (using the customer’s lending criteria), disbursement, and servicing – or any of these lending services that the client does not offer. It also enables each loan to be split among multiple lenders, improving the risk profile of each lender’s portfolio. LendKey can even augment a lender’s own marketing efforts to help attract new borrowers. All a would-be creditor needs to bring to the table is capital.
DFJ Gotham first invested in the company, originally called Fynanz, as it began enabling in-school education loans. Last year, the company began enabling education consolidation loans. Now the company has rebranded to LendKey to emphasize the ease and flexibility of its solution. Today, LendKey counts more than 225 financial institutions as customers, having helped them to originate more than $325 million in education and consolidation loans.
Going forward, the company is expanding its client base from credit unions to community, regional, and possibly even national banks. It has also been approached by peer-to-peer and other next-generation small business and consumer lending companies who see an opportunity to quickly enter these attractive markets by leveraging the LendKey platform. Over time, expect LendKey to broaden the variety of loans it enables; the existing platform could easily be applied to home improvement loans, for example, as well as any number of other credit products.
No one lender – large bank, credit union, or peer-to-peer lender, will fill the consumer credit void that has persisted since 2008. But the LendKey platform will enable many to jump into the breach.
