History of Lending

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Technology and the Democratization of Lending

NO TECHNOLOGY

ANCIENT GREECE AND ANCIENT ROME PAWNBROKERS
One of the oldest money lending practices and a form of secured lending with items held as collateral keeping risk down for the lender.
MIDDLE AGES THE MERCHANT OF VENICE
Christians were forbidden from lending money with interest while Jews could lend with interest to non-Jews. Traders in Venice at this time had access to money lending services from Jewish lenders.
‘BANCA’ THE BENCHES WHERE MONEY LENDERS DID THEIR BUSINESS FROM, GIVING RISE TO THE WORD ‘BANK.’ WHEN A LENDER CEASED TRADING HE WOULD SMASH HIS BENCH – ‘BANCA RUPTA,’ HENCE ‘BANKRUPT
MIDDLE AGES THROUGH 1800s INDENTURED LOANS
The rich lent to those without means and in return the borrower worked off their debt by working on the lender’s estate.
18TH CENTURY ROTHSCHILD AND INTERNATIONAL BANKING
Mayer Amschel Rothschild ‘invented’ international banking when he placed his sons in five European cities, creating a network for transferring money. Within a century, the Rothschilds were among the wealthiest families in the world.
The fixing of the daily gold price took place at Rothschild Bank offices for 85 years (1919-2004). Proceedings were paused by participants raising a small Union Jack flag
LATE 18th CENTURY BUILDING SOCIETIES
Building societies first began in Birmingham in the UK in taverns and coffee houses. Ketley’s Building Society was founded in 1775 by the landlord of an inn. Monthly member subscriptions financed the building of member houses.
EARLY 1800s A NEW ERA IN LENDING
The Philadelphia Savings Fund Society was started so that average Americans could get access to loans and a means of saving.
1932 MORTGAGE FINANCE
US congress created the Federal Home Loan Bank system to support residential mortgage lending by local financial institutions, ushering in a new era of mortgage financing.

THE BEGINNING OF TECHNOLOGY

1950s – 70s CREDIT CARDS AND COMPUTERIZATION
1950 Businessman Frank McNamara paid a restaurant bill with a small cardboard card, known today as a Diners Club® Card.
1958 Bank of America launched the BankAmericard, later to become Visa, in Fresno, California where 45% of the residents were its customers. A card was sent to 60,000 residents and so the bank was able to convince merchants to accept it.
1966 Barclaycard was the UK’s first credit card.
1973 In 1973 Dee Hock, CEO of Visa computerized the credit card system reducing transaction time to less than a minute.

From early beginnings, the credit card goes on to become a popular method of payment. Before computerization, payment was slow and manual with phone calls between merchants, banks and credit card issuers to check credit balances, and lists of stolen card numbers to check against.

1959 DATA IN CREDIT DECISIONS
Lenders first start using FICO scores to make informed credit decisions.
1961 The reverse mortgage is born. The very first is written to Nellie Young in Portland, Maine by Nelson Haynes of Deering Savings & Loan to help the widowed wife of his high school football coach stay in her home after losing her husband.
1970 The Federal Home Loan Mortgage Corporation (known as Freddie Mac) is chartered by Congress, creating the secondary market for conventional home loans.
1980s & 90s INTERNET AND E-COMMERCE
Opportunities grow for online lending specialists
1985 Detroit-based mortgage lender Quicken Loans launches with much of the application and review process conducted online. In the first five months of 2015 it lent out $24.3 billion of the application and review process conducted online.
1999 First Internet Bank pioneered online-only banking, offering home mortgage loans and banking services.


SOPHISTICATED TECHNOLOGY

1990s CLOUD; ANALYTICS; DECISIONING; BUSINESS PROCESS MANAGEMENT; BEHAVIOURAL ANALYTICS
Companies start focusing more on processes – compared to functions and procedures – to maximise productivity, looking at chains of events and modelling cross-functional activities.
1955 In the US, the Federal National Mortgage Association (known as Fannie Mae) and Freddie Mac recommended FICO scores for evaluating mortgage loans.
1997 Predictive Model Markup Language (PMML) provides a standard language for predictive models. Predictive analytics develops as a risk mitigation tool.
EARLY 21st CENTURY MARKETPLACE LENDING; PEER-TO-PEER
2005 Zopa begins offering peer-to-peer loans in the UK. Since 2005 Zopa has lent over £1.45 billion to UK consumers and identifies the top three loan reasons as car, home improvements and paying off credit cards.
2006 Prosper kicked off the modern peer-to-peer lending industry in the US, followed by Lending Club and other lending platforms soon after.
2007 – 08 FINANCIAL CRISIS
From January 2008 to April 2011, the FDIC closed 356 banks that failed to manage the risks building up in their commercial and residential mortgage exposures.
2007 THE DIGITAL AGE
The first generation iPhone was released. Mobile banking, shopping and payments later gain popularity with the dominance of smart phones.
2010 LendingTree survey reveals 21% of US homeowners shopped online first for mortgage rates.
2015 Lenders compete to meet customer expectations of digital services. In 2015, BBVA saw an increase in consumer loans through digital channels with mobile users up 45%.
2016 The industry is rocked as Lending Club reveals a violation of the company’s business practice and the resignation of its CEO. Commentators call into question the future of the industry.

Paul Thomas | Provenir
“Throughout history, the basic premise behind lending and the extension of credit hasn’t changed, however, the way lending happens has changed fundamentally. This change will only continue, driven by two fundamental factors – the progression of technology and the need for innovation to meet evolving customer expectations. Customers expect rapid response times and a hassle-free experience. Institutions that embrace the possibilities brought about by the internet, cloud, predictive analytics and future innovations that haven’t even been thought of yet, stand to benefit.”

Paul Thomas, Managing Director, Provenir


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