Author Topic: Do Fintech Lenders Penetrate Areas That Are Underserved by Traditional Banks?  (Read 2093 times)

Rob L

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Don't know if everyone noticed this Fed working paper referenced by Peter in his blog post this week.
If not here's the link. Pretty interesting reading. Much better than that very poorly done Fed working paper published then retracted a few months ago.

This final sentence from the abstract got my attention:
"We also find that the portion of LendingClub loans increases in areas where the local economy is not performing well."

Also from the body of the report:
"Interestingly, in columns 3 and 4 of Table 2, the share of LendingClub loans in a local area is positively related to unemployment and negatively related to the home price index and per capita income, indicating LendingClub may gain market share in areas where economic variables indicate a more challenging environment."

https://www.philadelphiafed.org/-/media/research-and-data/publications/working-papers/2018/wp18-13.pdf?mod=djemFinancialRegulationPro&tpl=fr

« Last Edit: March 25, 2018, 09:48:08 AM by Rob L »

nonattender

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I've been waiting years for underwriting algos which can better price risk for the lower end of the credit spectrum (or the "credit invisible" / "thin file") - of course, they need some type of data upon which to base those algos.  It's been all PR and marketing claims, largely vaporware, for so long - but it finally appears to be just on the horizon.  One of my first fascinations at Prosper, back in 2006 or so, was picking through either no file or thin file loans ("NC" Grade = No Credit score could be calculated) and trying to do semantic and lexical analysis (this was back when borrowers provided a written loan description of their financial situation and/or their intentions for use of the loan proceeds).  My results were a lot better (slightly over breakeven) than the overall performance for that grade (~50% net loss, as a whole), but it was super labor/time intensive (read: "costly" - which opened my eyes a bit to why most of the subprime shops had to charge what "looked like" onerous rates, when translated into APR terms, just to stay in business) - but, of course, I learned that what I was doing - even though I wanted it to work - just simply wouldn't scale - not only because the NLP analysis part was "a very hard problem" to automate, but also because the whole idea of having borrowers write a three paragraph essay led to a tremendous amount of dropout and/or wasted time on their end, too.

Experian acquired Clarity a little while back - which, if they use it (and other "alternative data sources") right - and can strike the right balance on "privacy" - could seriously help give all these AI and/or machine learning algos (that have been talked up and fundraised upon, for so long, with not much to show for it) something meaningful and predictive to process.  I look forward to some real progress in that area, in the very near future.
« Last Edit: March 31, 2018, 07:12:22 AM by nonattender »
A little nonsense now and then is relished by the wisest men.

James Adams

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Don't know if everyone noticed this Fed working paper referenced by Peter in his blog post this week.
If not here's the link. Pretty interesting reading. Much better than that very poorly done Fed working paper published then retracted a few months ago.

This final sentence from the abstract got my attention:
"We also find that the portion of LendingClub loans increases in areas where the local economy is not performing well."

Also from the body of the report:
"Interestingly, in columns 3 and 4 of Table 2, the share of LendingClub loans in a local area is positively related to unemployment and negatively related to the home price index and per capita income, indicating LendingClub may gain market share in areas where economic variables indicate a more challenging environment."

https://www.philadelphiafed.org/-/media/research-and-data/publications/working-papers/2018/wp18-13.pdf?mod=djemFinancialRegulationPro&tpl=fr

Thank you for the info! I am also interested in the loans as the investor so this info may come in handy. 

aihumlae7

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Thank you bro! Your information is so nice!