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

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

Investors believe marketplace lending can create substantial disruption Venture Capital Funding for Lending Startups $2,500 $2,366 $1,875 85% of institutional investors are $1,250 interested $1,003 $625 $320 $315 $301 $179 $0 2010 2011 2012 2013 2014 2015

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 10.0% Oil 7.5% 5.0% 2.5% 0.0% = $700 annual Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 savings Household Debt Service Payments to Disposable Income 14.0% 13.0% 12.0% 11.0% ~$37.00 / Barrel 10.0% 9.0% Jan-84 Jul-87 Jan-91 Jul-94 Jan-98 Jul-01 Jan-05 Jul-08 Jan-12 Jul-15 Jan-19

And credit performance shows no sign of deterioration 18.0% 13.5% 9.0% 4.5% 0.0% 5 6 7 8 9 10 11 12 13 14 15 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 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 $3.0 $2.3 Dollars in Trillions $1.5 $0.8 $0.0 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 140% 120% 100% 80% 60% 40% 9 2 5 9 2 5 9 2 5 9 2 5 9 2 5 6 6 6 7 7 7 8 8 9 0 0 0 1 - - - - - - - - - - - - - - r l v r l v r l v r l v r l u u u u u a a a a a o o o o J J J J J M M M M M N N N N Recessions Household Liabilities as a % of Disposable Income

Financial systems became increasingly complex 600,000 Structured Credit Collateral 450,000 RMBS CMBS ABS 300,000 CMO CLO 150,000 CDO CDO 2 CDS 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Other Structured Credit

2008 was the worst year for the S&P 500 since the Great Depression 2,500 1,875 1,250 625 0 2019201820172016201520142013201320122011 201020092008200720072006200520042003200220012001 20001999199819971996199619951994

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

Lester Anderson H O M E S T E A D , F L 2 0 0 7 8 years employed $55,000 salary FICO Score: 700 Married with kids 2002 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

Lester Anderson H O M E S T E A D , F L 2 0 1 0 11 years employed $55,000 salary FICO Score: 650 Married with kids 2002 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

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

~$22 trillion consumer credit opportunity across US and Europe

Borrowers find that marketplace lenders better meet their needs Net Promoter Score 0 10 20 30 40 50 60 70 80 90 100

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

Non-prime consumer losses are more resilient through downturns Super- > 770 3.00x 0.2% 0.7% Prime Prime 710 - 770 2.60x 1% 4% Near- 650 - 710 1.75x Prime 5% 10% Subprime < 650 1.40x 17% 28%

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 (%) 13.8% 5.2% 1980 - 1999 2000 - 2013

Investor interest has fueled growth across the industry Loans Purchased ($Bn) Total Origination Volume $4.0 $3.0 $150 Bn $2.0 1.7884 1.6244 $1.0 0.8154 $15 Bn 0.3325 0.1533 0.0897 0.0607 $0.0 2008 2009 2010 2011 2012 2013 2014 2015 2025 Individuals Institutions

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 Marketplace Lender Yields Tight on Cards 40.0% Outpace Bonds 20.0% 17.0% 28.8% 30.0% 15.0% 20.0% 18.0% 10.0% 9.0% 12.6% 10.0% 5.0% 4.0% 1.0% 0.0% 0.0% Average Credit Card Average Credit Average Digital 3-Year Treasury Bloomberg US High Hield Penalty Rate Card Rate Lender Rate

How are Banks Responding?

Partnership versus competition…

Not only Avant

Significant partnerships on capital side

The Avant Difference

Products O n l i n e / P O I N T O F P O W E R E D B Y Channels M o b i l e S A L E Retail Healthcare Auto Home Customer Tools

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

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

Complementary partnership offering Consumer Credit Spectrum 550 600 650 700 750 800 850 • • Low Cost Digital Platform Powerful Brand & Branch Network • • Engineering and Technical Depth Low Cost Capital & Industry Expertise • • Machine Learning Underwriting Loyal & Diverse Customer Base • • Marketing Analytics & Automation Customer Data & History ✓ ✓ Reduced Acquisition Costs No Cannibalization Risk ✓ ✓ Multi Product (Consumer, Auto) Alignment of Interest

So how does this impact Lester?

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

Great consumer experience driving long term adoption…

‘ ‘ lowering the costs and barriers of ” borrowing