August 18, 2014

New financial product structures are spreading like wildfire, says Citi's Pandit

New financial product structures are growing in availability, and a great deal of the finance industry's innovation centers around this trend, former Citigroup chief executive Vikram Pandit recently told American Banker. Amid this situation, Pandit highlighted a key opportunity.

"For the first time in a long time, I can see the real ability to democratize finance," he told the news source. "And that to me is really exciting."

Pandit focuses on innovative lending
Pandit has had a front-row seat to the widespread innovation helping fuel this availability, spending the years after leaving Citi focusing on investing in industry startups like CommonBond and Fundbox, according to the media outlet.

The former company, founded at Wharton in 2012, lets student loan borrowers negotiate lower interest rates. The latter focuses on a different demographic, providing small businesses with credit based on their outstanding invoices.

P2P lending's market share on the rise
These fledgling companies provide a mere glimpse of the innovation that lending has experienced in recent years, as peer-to-peer and other internet lenders have been swiftly growing their market share by providing a nontraditional method of loan origination.

Lending Club, which has facilitated more than $4 billion in loans, started readying itself for an initial public offering earlier this year, two people with knowledge of the topic told The Wall Street Journal.

The P2P lender, which was recently valued at almost $4 billion, tapped Goldman Sachs Group Inc. and Morgan Stanley to start preparing for an IPO that could happen later in 2014, the individuals told the news source.

CNBC recently named Lending Club to the 2014 CNBC Disruptor 50, singling it out as one of "the country's most ambitious and innovative companies" that the major media outlet thinks are "changing the economy and overall business landscape," the company wrote on its blog. The P2P lender stood out in a pool of more than 500 companies nominated by venture capital firms.

Pandit emphasizes need for democratization
In the blog post, Lending Club reaffirmed its commitment to continuously improving its platform, and growing its customer base. The company has already taken one step toward this end, providing credit to small businesses.

While this push might grant fledgling companies broader access to financial products, Pandit asserted that all companies in this industry should be working toward this goal, according to American Banker.

"For any financial institution, the question should be: 'what role are we going to play in this march toward the democratization of finance?'" he told the news source. "And the answer is going to determine exactly what their strategy is, how they adopt technologies, and how they position themselves."

In particular, Pandit emphasized the high fraction of the global populace - estimated by some at between 2.5 and 4 billion - left out of the financial system, the media outlet reported. Either of these numbers is substantial, he noted.