Hans Morris, a long-time Citigroup banker and former president of Visa, has become the latest finance-industry veteran to back an online lending marketplace, joining a $35m round of equity financing for CommonBond, a student loans specialist.
Marketplace lenders have developed rapidly in recent years, combining simple online loan applications with virtual platforms to package and sell assets to yield-hungry investors. New York-based CommonBond is among an emerging second rank; smaller than the likes of Lending Club, Prosper and SoFi, but growing fast by encouraging high-income graduates to refinance government-backed loans.
It has now raised a fourth shot of equity to “double down across the business, across sales, technology and marketing,” according to David Klein, chief executive.
Mr Morris, who was president of the world’s largest payments company between 2007 and 2009, is investing a smaller sum than August Capital, a Menlo Park-based venture fund which is leading the transaction. Other existing CommonBond investors such as Vikram Pandit, former chief executive of Citigroup, and Tom Kalaris, ex-head of the wealth business at Barclays, have chipped in undisclosed sums to preserve their percentage ownership of the company.
“I think [student loans] is a very good spot, and I think they have the best product,” said Mr Morris.
Morgan Stanley estimates that US marketplace-lending originations will increase to more than 8 per cent of total consumer unsecured lending and 16 per cent of small-business lending within five years, with much of the loan volume taken from traditional retail banks.
Meanwhile some of the leading players continue to hire people from mainstream banks and financial companies. Last month Lending Club, the biggest operator in the sector, announced that it had hired Sandeep Bhandari as chief credit officer, from Capital One Bank. In July CommonBond recruited Morgan Edwards, a longtime Wall Street leveraged debt specialist, as its chief financial officer.
Mr Morris’s investment will be made through Nyca Partners, a vehicle he set up two years ago with the aim of bridging cultural gaps between New York and the high-tech hubs of California. Portfolio companies include Affirm, which offers payment plans for online purchases; Digit, an automated savings plan; and Payoneer, a cross-border payments company.
Mr Klein said that the typical CommonBond customer — aged 32, with a six-figure income, and a FICO credit score around 770, well clear of the 640 threshold for prime — pays about $14,000 less over the lifetime of the loan, compared to a government programme. He is now considering moves into personal loans and mortgages for this elite class of borrower.
“We’re thinking about products and services they need and will need. Already, many of these folks are entrusting us with the largest financial decision of their lives,” he said.
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