Patent Grant
10922748
The present invention is in the technical fields of financial transaction computer systems, internet finance, on-line lending, social lending and the purchase and sale of investment securities on-line. More particularly, the invention is in the internet lending-based technical subfields of affinity investment systems, debt investment management systems, credit risk reduction systems, securities law compliance systems, investor-directed lending systems and Peer-to-Peer lending computer systems.
On Feb. 17, 2016, a company called Streetshares, Inc. became the first company in the United States to receive qualification from the U.S. Securities and Exchange Commission (“SEC”) to offer public securities for funding small business loans to non-accredited retail investors. The lending technology and system described herein implements these new securities, as well as new features to improve these transactions. This technology has applications in other fields as well.
Marketplace Lending (formerly called Peer-to-Peer (“P2P”) Lending) is an alternative financing system by which investors use the internet to invest in loans made to borrowers over the internet and outside of the traditional banking structure. Investors (“Investors”) can be individuals or institutions. Borrowers (“Borrowers”) may be individuals, business, or organizations.
Contemporary Marketplace Lending is usually conducted without the Investor making a loan directly to the Borrower. Rather, Marketplace lending is accomplished through an intermediary. An intermediary (“Intermediary”) is most often a private company that operates an online loan marketplace, or a private company non-bank lender that makes loans using a Marketplace/P2P lending structure.
In 2008 and 2009, an initial regulatory structure was approved by the SEC for how to legally conduct consumer loan P2P Lending over the internet in the United States. The SEC's approved system placed online intermediaries in between Borrowers and Investor, and placed those intermediaries at the center of two correlated transactions. The first transaction is the loan made by the Intermediary to a Borrower using funds committed by Investors to back a particular loan. The second transaction is a Payment Dependent Note (“PDN”) sold by the Intermediary to the Investors who committed funds to back that particular loan. Multiple PDNs correlate to a single underlying loan made to a Borrower by the Intermediary. PDNs are a special, limited obligation to the Investors made by the Intermediary. Importantly, repayment on PDNs to Investors by the Intermediary is wholly dependent on repayment to the Intermediary by the Borrower on the underlying loan. In other words, an Investor who backed a loan by purchasing a PDN from the Intermediary will only be paid back if the Borrower who received the corresponding loan from the Intermediary makes repayment on the underlying loan.
In approving a structure in which loan risks are passed on to the Investors, the SEC limited P2P Lending to either: 1) sophisticated investors and institutions via a private placement of securities without a public risk filing with the SEC (these investors were deemed capable of understanding the risks of the loan and wealthy enough to absorb the consequences of a poor investment), or 2) to non-accredited Investors via a public risk filing with the SEC by P2P Intermediaries (those investors which, by the SEC's definition, were less sophisticated and less wealthy and therefore needed the safeguards of SEC regulation). P2P Lending became known as Marketplace Lending is approximately 2014.
For Marketplace/P2P loans backed by non-accredited Investors, the SEC limited Marketplace/P2P lending to Intermediaries that made consumer loans. Until Streetshares, Inc. obtained SEC approval in February 2016, the SEC did not approve of a Marketplace/P2P Lending system for non-accredited Investors lending to other kinds of Borrowers, such as small businesses.
What is needed are systems and methods for improved Marketplace/P2P Lending. What is needed are systems and methods for digital end-to-end technology solutions for lending. What is needed is improved small business digital lending methods and systems.
What is needed is affinity investment systems and methods for online and peer-to-peer lending. What is needed are auto investment systems and methods for online investments and peer-to-peer investments. What is needed are auto investment systems and methods including investment criteria selection for risk, rate and/or bid amounts. What is needed is an auction or funding period system to fulfill on-line loans. What is needed are online peer-to-peer lending systems with auction or funding period bidding and automatic payment distribution to investors.
What is needed are systems and method for non-accredited Investor Marketplace/P2P lending to non-consumer loan Borrowers including small businesses. What is needed is implementation of a new structure and algorithms that will permit non-accredited Investor Marketplace/P2P lending to non-consumer loan Borrowers including small businesses. What is needed is a technology for computer implementation of an Non-Payment Dependent Note (“NPDN”) structure—one in which all risks of the loans are not passed on to investors—that permits non-accredited investors to back loans to every kind of Marketplace/P2P Borrower, including businesses, non-profit organizations, automobile purchases, real estate purchases, and all other forms of lending. What is needed is on-line systems and methods designed to permit non-accredited investors to participate in all forms of Marketplace Lending on equal footing with the Marketplace/P2P Lending activities permitted to wealthier accredited investors.
What is needed are systems and methods for investors to compete to fulfill desired loans. What is needed are systems and methods for borrowers to compete for investor funding.
The content in this Background is not admitted as prior art by Applicant and is simply provided as introductory material to assist the reader in understanding. Applicants provisional applications cited above pre-date some of the materials disclosed in the Background.
Except where specifically noted, the terms Investor(s), Borrower(s), and Intermediary/Intermediaries are used throughout this application to refer to participants not only in a Marketplace/P2P lending transaction, but also non-Marketplace/P2P-related transactions.
Systems and methods for conducting Marketplace/P2P Lending consists of 5 basic steps [See
An important element of Marketplace/P2P lending is that Investors can elect to invest in a particular loan or group of loans of the Investor's choosing. This is in contrast to the more common method used in most investment vehicles in which Investors invest in a pool of assets selected by an Intermediary, such as an investment fund. In other words, Marketplace/P2P lending is unique in that the Intermediary allows the Investor to elect what loans the Intermediary makes with the funds provided to the Intermediary by the Investor. One of the present inventions uniquely preserves investor direction of funds, while giving the Investor the risk avoidance benefits of an NPDN structure.
The disclosed Marketplace/P2P lending technologies provide a powerful, convenient and easy solutions to online lending. The disclosed technologies provide for financial institutions to set-up a digital end-to-end business lending system. The disclosed methods and systems take advantage of auction or funding period, affinity investing, auto investing and/or NPDN. The disclosed systems allow various combinations of these features to be used together.
The disclosed Marketplace/P2P lending technologies enables prospective borrowers to apply through their smartphone/tablet/desktop device and get underwritten in a matter of minutes without any physical paperwork. The Marketplace/P2P systems and methods connect with external services such as, but not limited to, Yodlee, Docusign, Veritax and QuickBooks to give the underwriter or credit module a holistic view of the borrower including cashflows, taxes and financial ratios, in order to make a fully digital lending decision. In some embodiments, the Marketplace/P2P systems and methods are integrated with Salesforce.com and Pardot, which are used to manage customer contact throughout the process. In another embodiment, the data is stored real time in Amazon Web Services (AWS) and is fully secured and encrypted.
One of the objects of the invention is to provide better computerized systems and methods for digital lending and Marketplace/P2P lending. Another object of the invention is to provide systems and methods for improved on-line lending. One of the objects of the invention is improving systems and methods for Marketplace/P2P lending for small business. One of the objects of the invention is improving systems and methods for Marketplace/P2P lending using non-accredited investors. One of the objects of the invention is improving systems and methods for Marketplace/P2P lending using a Non-Payment Dependent Note (“NPDN”) structure. One of the objects is improving systems and methods for digital end-to-end technology solutions for lending. Another object is improvements in small business digital lending methods and systems.
Another object of the invention is to support on-line loan auction or funding periods or competitive methods of filling loan requests.
Another object of the invention is to support automatic payment distribution to investors. Yet, another object of the invention is to simplify and streamline automatic payment distribution calculation and disbursements. Another object of the invention is to support automatic payment distribution to investors. Yet, another object of the invention is to simplify and streamline automatic payment distribution calculation and disbursements.
Another object of the invention is to support automatic payment distribution to investors. Yet, another object of the invention is to simplify and streamline automatic payment distribution calculation and disbursements.
Other objects of the invention include use of affinity—social loyalty between individuals with shared traits—to improve borrowing and lending. Another object of the inventions includes use of affinity based borrowing and loan auction or funding periods.
One of the objects is to use affinity in Marketplace/P2P lending and small business lending. One of the objects is to use affinity in digital lending.
Some embodiments are directed to computerized systems and methods for Investor-directed online lending using a Non-Payment Dependent Note (“NPDN”) securities structure. This embodiment has applications both in Marketplace/P2P lending and other forms of investor-directed financing. The NPDN systems and methods are useful in internet-based Marketplace/P2P lending.
Marketplace/P2P Lending prior to NPDN involved the Investor receiving Payment Dependent Notes (PDNs) from the Intermediary and exposed Investors directly to the credit risk of the underlying loans selected by the investor. One of the objects of the invention is to reduce or eliminate the exposure by Investors to the credit risk of underlying loans in Marketplace/P2P lending.
Another object of the invention is to allow Investors to receive Non-Payment Dependent Notes (NPDNs) from the Intermediary, thus reducing or shielding Investors from the direct credit risk of the underlying loans. Other objects of the invention include permitting Investors to receive fixed principal and interest repayments from the Intermediary, making Investors eligible for a discretionary bonus granted to the Investor by the Intermediary depending on the performance of the elected loans, and—unlike existing investment fund or bank models—uniquely preserves the ability for Investors to elect the loans the Investor wishes his investment to fund.
Some inventions relate to systems and services to provide powerful, convenient and/or easy ways for peer-to-peer or on-line lending. Other inventions relate to ways for to set up a digital end-to-end lending solutions including for small businesses. Some inventions relate to auction or funding periods to fund loans or portions of loans. Other inventions bring affinity systems and methods to online lending and Marketplace/P2P Lending. Other inventions relate to systems and methods for investor-directed online lending using a non-payment dependent note securities structure. Other inventions relate to auto investment systems and methods for use with on-line lending systems.
Following is an outline of the content in the detailed description in the order discussed:
High Level View of Reference Architecture
Basic Process Flow and Steps
Onboarding Service:
Underwriting/Decision Service:
External API Service:
Authorization Tier:
Underwriting System
Workflow Management System
Real Time Email Delivery
Salesforce.com Module
Olark Chat Module:
Detailed Process Flow and Steps
Onboarding Borrower Experience
API References
Onboarding API
Underwriting/Decision API Service:
External API Service
Authorization API Service
Affinity systems and methods
Auto invest systems and methods
NPDN embodiments
Auction or Funding Period Bidding
Distribution of loan payment
Dashboards, displays and reports
Exemplary hardware description
Conclusion
High Level View of Reference Architecture
Referring to
Referring to
Onboarding Service:
In the example shown in
Referring to
Referring to
Underwriting/Decision Service:
Referring to
The second step in the Decision Service is to retrieve all relevant documentation that was either manually uploaded or directly pulled from external services 52. A new application is created by the decision system 53. The data is combined and run through decisioning algorithms for consideration by an underwriter or an automated decisioning framework (e.g., run credit algorithm 58). Hard cuts may be applied 54, 55 credit scores may be pulled 57 and credit algorithms run 58. Once the review has been completed, a final decision by the automated decision system 56 is returned to the borrower 59.
Referring to
External API Service:
Referring to
Authorization Tier:
Referring to
Referring to
Referring to
Underwriting System
Underwriting systems are used by credit groups in organizations. Following is an exemplary system is used by a credit group for underwriting on-line lending. This system gives the underwriter a holistic view of the borrower including cashflows, taxes and financial ratios etc. This helps the underwriter in making a fully digital holistic lending decision. The underwriter also has the ability to send the loan back if more information is required from the customer.
The system collects and provides the following information to the underwriter:
This exemplary module is integrated with the underwriting system. It is used by the underwriter/loan processor to ensure that all the necessary steps have been followed before funds are released. It also has the capability to send the loan back if more information is required. Here are some of the other capacities of the system
There are also services set up to send real time trigger or campaign (“funnel management”) based emails to customers. The email services are primarily broken into four types:
In some embodiments, a sales contact module or interface is used. The exemplary Salesforce.com module communicates with the onboarding service, receives new application inputs, and automates part of the sales-borrower interaction. The Salesforce.com module can be configured such that it automatically:
In some embodiments, a chat module is used. An exemplary chat module is the Olark Chat module which is integrated with Salesforce.com and onboarding service. It is fully desktop and mobile enabled. The chat functionality is available across the whole onboarding process including landing page. In one embodiment, the chat module is configured such that:
Referring to
Onboarding Borrower Experience
An onboarding borrower experience is described with reference to
API References
The following section includes an exemplary listing of exemplary API calls that each service may support with a brief description, the necessary authentication (P denotes a private authentication token needed while a U denotes a user authenticated token), and the specific permissions needed for user based calls where necessary.
Onboarding API:
The following table lists the exemplary REST API calls available for the Onboarding service.
Underwriting/Decision API Service:
The following table lists exemplary REST API calls available for the Decision Service:
External API Service:
The following table lists exemplary REST API calls available for the External API service:
Authorization API Service:
The following table lists exemplary REST API calls available for the AUTH service:
Affinity Investment Methods and Systems
One of the embodiments is directed to systems and methods for Investor-directed online lending using affinity—social loyalty between individuals with shared traits—methods and systems. Particularly in peer-to-peer lending systems affinity investment methods and systems improve performance and customer satisfaction. Auto invest methods and systems can be combined with affinity investment to further improve performance of lending and loans as well as improve customer satisfaction. Both the burrowers and the lenders are able to benefit from affinity based lending. The intermediary benefits from less delinquent loans to manage and, if the intermediary is investing alongside, increased returns on affinity based loans.
In affinity systems and methods, the lender or facilitator nurtures affinity groups between Borrowers and Investors. These are connections or a touchstone that business Borrowers and Investors have in common. Affinity systems and methods have many benefits: (1) Lower cost of capital—investors are willing to offer lower interest rates to a business owned by someone with a common touchstone. (2) Decreased risk for investors—borrowers are more likely to repay a loan from people they have a connection with and may be more like themselves than a loan from a big anonymous bank. (3) Lower customer acquisition and marketing costs—members of an affinity group will be likely to refer others to become borrowers and investors. The affinity lending system creates a win-win for both investors and borrowers.
There are many different types or categories of affinity groups which may be used with the affinity lending system, one example is U.S. military veterans.
Referring to
When a business borrower applies for a loan, the affinity system verifies the borrower's status as belonging to a particular group or class, in this case veteran status. Thereafter, where appropriate the website indicates veteran status on information made available to all investors as shown below. In some embodiments, the affinity system will also note the affinity group that the investor members or borrowers belong to with an electronic symbol such as badges, logos or other identifying marks. For example, military service symbols or veteran organizational symbols may be placed on the borrower's or investor's web presence or web page in the affinity loan system.
The lending system stores the affinity symbols or logos as well as the criteria for qualifying or checking credentials for admission to such an affinity group. In this manner, the system can check or verify membership by an individual in a particular affinity group. In some embodiments, borrowers wishing to belong or be affiliated with a particular affinity group must qualify or be verified prior to being admitted to the affinity group.
Referring to
Both investor and borrowers are attracted to organizations supporting groups in which they are members. An affinity system helps attract and maintain lenders and borrowers as it builds a connected community. Borrowers and lenders will join because, for example, they are veterans themselves, or specifically interested in backing veteran-owned businesses. Investors will bid lower interest rates for affinity groups that they wish to support. Other affinity groups include: alumni groups, geographic areas, industry areas, professions, associations, sports affiliations and others.
The lending system can be arranged to display all borrowers in a particular affinity group or all open auction or funding periods within an affinity group. In this way, investors can target their loans to certain affinity groups. Various incentives can be provided to both borrowers and investors for investing within an affinity group. These incentives can range from coupons to financial incentives. For example, if a Harvard alumna investor supports a Harvard alumna borrower, the investor may obtain a coupon for the product or services provided by the business. In another example, the intermediary provides a discount on administrative costs associated with the affinity based loan.
Auto Invest Systems and Methods
One of the embodiments uses auto invest systems and methods to allow lenders to invest in certain borrowers based on a set of investment variables. The auto invest tool operates on-line through a website or portal. The auto invest feature may be combined with other features and embodiments described.
Accredited investors (also known as “Regulation D” investors) can either electronically place fractional loan purchase orders or bids or orders individually on individual loan auction or funding periods, or use the Auto Invest tool to automatically place orders or bids or orders on each loan auction or funding period that meets the investor's criteria. Auto Invest has two parts, an investment criteria part and a bid amount and rate part.
With regard to the investment criteria part, investors select criteria to determine the loan auction or funding periods for which they would like to have Auto Invest bids or orders placed. In one embodiment, the criteria available are loan risk criteria, as shown below. In other embodiments, the investors have additional criteria they can choose from, including geographic areas, business borrower industry type, loan size, loan term, and membership in affinity groups (Veterans, alumni networks, geography, industry, etc.).
Auto invest is performed in multiple ways, for example by risk tolerance and investing with or alongside another investor. The system allows the investor to choose auto investing and to adjust for risk tolerance or risk allocation and adjust for expected net return. An example of selecting risk allocation and expected return is shown in
With regard to the second part, bid amount and rate variables, once investors have chosen investment criteria, investors are invited to choose the bid amount and rate for each on-line Auto Invest bid. In the example shown below, investors can choose the bid amount as either a fixed dollar amount (for example in $25 increments) or as a percentage of the full loan amount. Many other bid amounts or arrangement are available or possible in an auto invest system. Also, in this example, investors can choose the bid rate, for example as a fixed percentage at, above, or below a lender or facilitator's bid, as shown below:
Set Your Bid Amount:
The average System loan amount is currently $21,800
Percentage of Loan desired to Auto Invest ____% OR
Dollar Amount of auto invest desired: $50.00
What's the difference between the two above?
Your Average Bid Amount: $50
Set Your Desired Loan Rate:
The average System rate is currently 21%
Your desired Rate 20.25%
Your Average Bid Rate: 20.75%
The following additional information about the lending system can be provided to the investor as shown below:
Some More Details about Auto Invest
+Auto Invest automatically bids or orders as new loans that meet your investment criteria are added to the System market place. Bids or orders are made at the start of these auction or funding periods.
+As with any bid on the lending system, bids or orders placed through Auto Invest are final and cannot be cancelled.
+As long as you have sufficient funds to meet your investment criteria, Auto Invest will make bids or orders.
+You can turn Off Auto Invest at any time.
+Interest rates, Estimated Loss Rates (ELRs), and System's credit policy are subject to change. Such changes could impact your investing decisions and criteria. Information on System will always be current and accurate, and will reflect any updates to such rates and ELRs.
+In order to use Auto Invest, your total account value must be at least $1,000.
+System reserves the right to terminate any individual investor's access to Auto Invest at any time.
+Auto Invest will not make bids or orders in auction or funding periods where you already have a current, active bid or order.
+Auto Invest will generally not make bids or orders in auction or funding periods that are closed unless special selections are made in your auto invest profile.
+Auto Invest FAQs
1—What is the range of interest rates for loans of similar risk levels within the current System portfolio.
2—What is ELR? Estimated Loss Rate (ELR) is the current default rate for similar loans. It is based off a number of factors such as historical data of similar assets, expected performance, and market conditions. The interest rate should compensate for the expected loss rate that the business carries together with any expected volatility in returns.
3—What is the Sytem's Loans That Meet Your Criteria? It represents the percentage of loans within the current System portfolio that meet your investment risk criteria.
4—What is Expected Net Return? It is an estimate based off similar investments in the System portfolio, which calculates return on a daily basis, namely all received interest and fee payment less loses, dollar weighted by invested funds. Funds are considered invested when a borrower accepts their loan. Only realized, not expected interest, fees, and losses are included in the calculation. The rate is then annualized, assuming the portfolio maintains the historical performance of a similar portfolio throughout the year.
In some embodiments, the auto invest feature is combined with the affinity feature. Specifically, in those embodiments, the auto invest feature includes the selection of one or more affinity groups to target the automatic investment. Thus, in addition to selecting risk criteria, bid amount and rate, ELR, the investor may choose to target loans to one or more affinity groups selected from the affinity groups available in the lending system. For example, an investor who is a veteran may choose to auto invest in certain affinity groups related to veterans or a subset of veterans. For this embodiment, the auto invest selections of
Non-Payment Dependent Note (NPDN) Embodiment
One of the embodiments is directed to systems and methods for Investor-directed online lending using a Non-Payment Dependent Note (NPDN) securities structure. NPDN is an advancement and improvement over use Payment Dependent Notes (PDN).
In various embodiments, the systems and methods of the Marketplace/P2P lending described include:
Previous system and methods that existed prior to the NPDN are described in this application. These loan types are available for use with the various systems, methods and features described in the various embodiments. In the following paragraphs, Payment Dependent Notes (PDNs) are used to help describe Non-Payment Dependent Notes (NPDNs)
The process is as follows:
More specifically,
More specifically,
Regulation a Investors (Non-Accredited Investors).
The systems and methods to offer regulation A investors investment opportunities via a website as described. With this system neighborhood investors, main street investors, can invest in neighborhood business, main street business. This more direct type of investment creates greater likelihood that both the business and investors will succeed. Those interested in investing will be directed to a landing page on the website that allows for entry of basic information such as first name, last name and an email address. Other basic information may be gathered in this stage of the process such as geographic information, address, profession and the like.
In one embodiment, those individuals who complete the landing page or provide the first webpage information will be contacted by a member of the lender staff, where they will be invited to fill out a detailed investor application on a paper copy sent by email. Once submitted, applications will be reviewed by the lender investor relations team as well as the lender legal team for OFAC, AML, and other suitability criteria. In other embodiments, this initial screening is completed completely electronically on-line.
Those investors who are approved by the lender will be invited to send funds by check via US mail to the lender. In other embodiments, funds are wired, paid by credit card or other financial transaction. Once funds are received and cleared via the bank, the investors will, as facilitated by the lender, be invested in a note earning a fixed interest rate. This investor note will be an NPDN note. Following the transaction, the investor may take advantage of the various digital features available to the investor including affinity methods and systems.
In some embodiments, the NPDN system and method is fully automated and digital from end to end between the lender/facilitator and the investor. All information and transactions are handled on-line and digitally. In these embodiments, the funds are received digitally and the NPDN notes are issued digitally and on-line.
Regulation D Investors (Accredited Investors).
The NPDN systems and methods are also available to accredited Regulation D investors. The system and methods are available through a website, examples follow. Certain parts of the system and methods or product are limited to accredited investors as defined by Rule 506(b) of Regulation D. In one embodiment, those interested in investing are directed to a website to apply online electronically. A first web page or landing page is used requesting first name, last name email address and creation of a private account with a password. Once created, the accredited investor uses the same account and password for all future interactions. The landing page also requests the investor agree to the terms and conditions, privacy policy and investor membership agreement. In most embodiments if the investor does not agree to the terms, no account is created.
Those who fill out the landing page information then proceed to additional online application forms. Once submitted, applications will be reviewed by the lender/facilitator investor relations team as well as the legal team for OFAC, AML, and other suitability criteria. This processing is generally performed by an intermediary between the investors and borrowers.
Those investors who are approved are able to fund their account electronically by ACH bank transfer or by wire transfer. In some embodiments, credit card and other forms of investment are also available. Investors can also fund their account from a Self-Directed IRA. In some embodiments, a transfer funds page is used. This webpage may provide history of funding transactions or a transfer history. In some embodiments, tabs are available for each type of transfer or deposit with instructions and fill-in forms for each. Typical banking information is required for fund transfers.
The transfer funds webpage may include other information about the investors account such as whether auto invest has been activated, whether funds are left unallocated or not invested, notices, correspondence, etc.
Referring to
Referring to
Investors can click in the “funding tile” of a particular business to learn more information about the business. For example, the investor may view a summary of financial data prepared by the lender/facilitator credit team, or read a “pitch” written by the business owner. Armed with this information, investors then decide whether to bid a dollar amount and an interest rate on an auction or funding period for a loan to a small business.
More particularly, in one embodiment when the investor clicks in an auction or funding period tile a series of webpages appear with information about the company requesting funds (borrower).
Referring generally to
Referring to
Referring to
The bid tab view shows a tile with information on a particular borrower. If this borrower is actively looking for funding than the investor may bid from this view. Various information about the borrower's auction or funding period can be seen from the bid tab view. In particular, the time left in the auction or funding period (e.g., to bid on the loan) as well as the active bids or orders, their amounts and interest rates. Also, information on the intermediary's activities are provided on this tabular view both for transparency and to guide and assure the investor about the credibility of the loan and rates. In this example, StreetShares is used as the exemplary intermediary entity.
In
In many embodiments, the lender may bid a specific dollar amount and a rate for the auction or funding period. Bidders may place multiple bids or orders of varying amounts of dollars and varying interest rates. In the
As can be discerned from
In many embodiments, auction or funding periods have a fixed duration and the loan amount is pre-determined by the lender/facilitator credit team. For example, in some embodiments, investors can place bids or orders in units of $25 and choose the interest rate they would like to earn for their bid within two decimal digits. The minimum unit size of the bid can vary (e.g., $10, $20, $25, $30, $50, $100, $250, $500, $1,000, etc.) and the available interest rates can be restricted (e.g., whole numbers, quarter rates, eighths, tenths, two digit decimal, three digit decimal, etc.). In some embodiments, when time expires on the auction or funding period, the bids or orders with lowest interest rates that fully fund the loan amount are the winning bids or orders. If the business borrower accepts the resulting loan offer, the investors are issued Member Payment Dependent Notes (MPDNs) for their bids or orders.
In some embodiments, loan auction or funding periods may frequently end with funding from bids or orders offered by 20-30 different investors, each investor with bids or orders of a different amount and interest rate. Once the loan is fully funded, the remaining lenders bids or orders are generally ignored as lost bids or orders. In some embodiments, the lowest rate bids or orders are accepted over the higher rates until a time deadline is reached. Also, all other factors being equal, the earlier entered bids or orders are accepted over the later entered bids or orders. Various rules and variations on the auction or funding period and bidding process may be used in different embodiments.
In one embodiment, the system or method's platform automatically combines the various bids or orders for a loan into a borrower's blended rate as part of the single loan offer made to the business borrower. The blended rate allows the loan to appear to the borrower as a single loan with a single scheduled payment and a single interest rate.
If the borrower accepts the loan, in the embodiment using the blended rate, the borrower make a single payment to the lender, which the platform then automatically separates into payments issued for each investor, MPDN associated with the loan. In some embodiments including auction or funding periods, in which investors may make multiple bids or orders, a calculation for repayment of each winning bid is made.
Thus, in a competitive embodiment with an auction or funding period, different investors compete on interest rates to fund a loan. Each investor can bid in dollar increments, for example from minimum dollar increments of $25 for each loan. Each investor can bid an interest rate for the dollar increment. In some embodiments, an investor can enter multiple bids or orders into the platform.
All the investor bids or orders for a particular loan get combined to make a loan with one rate and one payment for the borrower. The borrower views this as a single loan. But each investor gets a predetermined payment which is based upon their bid amount and the bid rate. As long as the borrower is making timely pre-set payments off an amortization schedule, and remains exactly on schedule, the payments can be split back to the investors based on each investor's bid and the amount can be calculated upfront.
But this methodology breaks down if the customer deviates from the preset payment schedules e.g. prepays early, skips payments, make partial payments, charges off, etc. In an ideal world, the lending system would re-calculate bid level amortization tables for each investor's loan every time a borrower deviates from the payment schedule. This process would be extremely complex, and would require considerable system and platform work and is not possible with certain platforms. It is also difficult for many investors to understand and very difficult for investors to calculate on their own.
To resolve this problem in one embodiment of the lending system, an algorithm and technology that enables the system to allocate the payments across all different payment schedules or payment back scenarios from the borrower is used.
In many embodiments of the lending system, on a pre-set schedule (e.g. weekly, bi-weekly, monthly) a borrower is required to make a loan payment that is calculated upfront based on the loan amount, term of the loan and the blended rate of all the auction or funding period bid rates. The loan payment consists of principal that is the money lent to the borrower and the interest payment on the principal. The loan is a fixed interest amortizing loan and the principal portion of the payment increases over time and the interest portion of the payment decreases over time. The repayment schedules for the borrowers are set up-front, at the time the loan is taken, often using amortization tables or amortization type calculations. In some embodiments, fixed loan re-payment schedules are set.
For many loans, each loan consists of multiple investors and each investor can have a unique bid amount (or funded amount if entire bid amount was not utilized) and rate. Since the lending system receives one payment from the borrower, it uses a disbursement algorithm. The disbursement algorithm assists with calculating the amount of payment to each involved investor or note holder. Various disbursement algorithms are possible. In one embodiment, the system uses the following algorithm and methodology to disburse the payments to the individual investors holding the note.
For each payment for every loan, each investor gets a percentage of the principal amount paid by the borrower. In one embodiment, this principal payment factor is calculated as a percentage of the total loan amount that is funded by the investor. For example, if the total loan amount is $10,000 with a blended interest rate of 10% for a 1 year loan and the loan has 3 investors that have the following attributes:
Investor 1: bid amount—$1000 and bid rate—8%.
Investor 2: bid amount—$8000 and bid rate—10%
Investor 3: bid amount—$1000 and bid rate—12%
Then, for example, Investor 1's principal factor is his percentage of the principal of the loan or in this case 10% —$1000/($1000+$8000+$1000)=10%. Similarly, Investor 2's percentage of the principal is 80% (8,000/10,000) and Investor 3's principal percentage is 10% (1,000/10,000). The sum of these investor's principal factors, percentage of principal, is 100%. If the intermediary is also an investor on a particular loan, its loaned amount is included in the principal percentage and other calculations.
In addition to receiving a percentage of principal paid on every loan, for each payment of each loan every investor gets a percentage of the interest amount paid by the borrower. In one embodiment, this interest factor is calculated as a percentage of the total interest over the life of the loan that the investor is due based on the investor's bid amount and the bid rate. Given interest is a combination of amount and rate it, in this example the interest factor is calculated as (investor's bid amount×investor's bid rate)/(sum of all bid amounts×bid rates). For example, for the 3 investors above, Investor 1's interest factor is ($1000×8%)/($1000×8%+$8000×10%+$1000×12%)=8% and similarly for Investor 2 the interest factor is 80% and Investor 3 is 12%. The sum of these investor's interest factors is 100%.
Thus, in most embodiments, for every payment made by a borrower, each investor receives a principal payment based upon the investor's principal factor and an interest payment based upon the investor's interest factor. Interest only payment loans as well as situations in which the intermediary holds the principal amount would have interest only disbursements to investors with lump sum principal payments. Since it can be pre-calculated, the investor knows in advance the principal percentage and interest percentage of each payment to expect as a disbursement.
Also in some embodiments, the platform or service provider charges a servicing fee, for example 1% or 2% of all the payments to the investors. Servicing fees may range from zero to as much as 25%. Typical service fees are in the range of 0.25%, 0.5%, 0.75%, 1.0%, 1.5%, 2.0%, 2.5% etc. In some embodiments, the intermediary service fee is deducted from each payment made by the borrower. This service fee is automatically deducted from the payments due to the investors as calculated above. For example, if the borrower pays a first payment of $201.7 with the principal of $182.5 and interest of $19.2 then the payments will be disbursed as follows:
Investor 1: Principal 10%×$182.5=$18.3 and Interest of 8%×$19.2=$1.5. Total payment after 1% servicing fee=99%×($18.25+$1.5)=$19.6
Investor 2: Principal 80%×$182.5=$146.0 and Interest of 80%×$19.2=$15.3. Total payment after 1% servicing fee=99%×($146+$15.3)=$159.8
Investor 3: Principal 10%×$182.5=$18.3 and Interest of 12%×$19.2=$2.3. Total payment after 1% servicing fee=99%×($18.3+$2.3)=$20.4
In this embodiment, regardless of what the borrower pays and when the borrower pays, each investor's principal factor and interest factor are not changed for a given loan. This allows distribution of loan payments to be quickly and easily calculated. The two factors, principal factor and interest factor control all payouts or disbursements regardless of how much or when received. In some embodiments, any other payments such as late fees and delinquencies are similarly disbursed by percentage to investors using the two factors.
The methodology of the distribution and allocation of payment system described which can be applied across all payment schedules, late payments, make-up payments, recoveries, etc. The distribution and allocation of payment system may be implemented as a single methodology system or a hybrid. The use of the two factors, principal and interest, in the algorithm and methodology for allocating and distributing payments is easy to implement, robust, defensible and there is no need for any reconciliation. The systematic approach to allocating and distributing payments has many advantages. It is particular useful, efficient and powerful for an intermediary attempting to administrate a complex lending system with a number of investors.
In
In
The My Notes dashboard view provides donut charts (e.g., pie charts, bar charts and the like may be used) which provide visual data on the portfolio term, portfolio estimated loss rate and portfolio interest rate allowing the viewer to better understand and analyze the data. Also, in the
Referring to
Through a user interface on the lending system, investors can also access digital copies of their Member Payment Dependent Notes (MPDNs), monthly statements and/or reports for their portfolio, investor member agreement, bank account info and annual tax forms as well as website agreements such as Privacy policy, Terms and Conditions, and Risk Statement. In one embodiment, these types of documents are accessible through a “My Docs” web page or screen.
In many embodiments, the MPDNs are also available listed in a table along with ID number, status (e.g., in repayment, delinquent, paid, etc.), business name of borrower, amount of payment, interest rate on note, aggregate principal balance, original balance, issue date of note, initial maturity date of note and type of note (e.g., MPDN, NPDN, hybrid, other). In some embodiments, an active link is incorporated in a listing of the notes to allow investors direct access to copies of the notes. An example of a user interface web page, My Docs webpage, includes for example the following items:
MY DOCS
+Privacy Policy
+Terms & Conditions
+Risk Statement
+Verify Bank Account
+Investor Member Agreement
+2015 December Investment Report
+2015 November Investment Report
+2015 October Investment Report
+2015 September Investment Report
+2015 August Investment Report
+2015 July Investment Report
+2015 June Investment Report
+Tax Year 2015: Consolidated Form 1099
Above is a table of an investors member dependent notes along with their status amount rate, principal, issue date, maturity date and other info. In some embodiments, the table includes both MPDN and NPDN notes within the same table. The investor can access a list or table of the Member Payment Dependent Notes as well as Non-Payment Dependent Notes whenever desired through the lending system user interface.
If the investor would like to withdraw funds from their lender account, they can do so via a Transfer Funds webpage or API screen. Funds may be withdrawn by various electronic transfer methods and/or by check.
The embodiments include: hardware and software elements of the Marketplace/P2P lending system, the unique order of elements in the Marketplace/P2P lending system, affinity investing hardware and software, use of symbols and logos in affinity investment systems and methods, auto investing hardware and software, using the unique elements and method steps of Non-Payment Dependent Notes (NPDNs) in alternative lending, using the elements of NPDNs specifically for Marketplace/P2P lending and combinations of the above.
A borrower computing device 340 and Investor computing device 330 are shown as part of the on-line lending system. Numerous of the borrower 340 and computing devices 330 may be used with the on-line lending system. Each computing device is connected in some way to a network and is capable of communicating with the on-line lending systems computer system 300. Computer system 300, including client-servers combining multiple computer systems, or other computer systems similarly configured, may include and execute one or more subsystem components to perform functions described herein, including steps of methods and processes described above with reference to the various figures including
Computer system 300 typically includes a memory 302, a secondary storage device 304, and a processor 306. Computer system 300 may also include a plurality of processors 306 and be configured as a plurality of, e.g., bladed servers, or other known server configurations. Computer system 300 may also include an input device 308, a display device 310, and an output device 312. Memory 302 may include RAM or similar types of memory, and it may store one or more applications for execution by processor 306. Secondary storage device 304 may include a hard disk drive, floppy disk drive, CD-ROM drive, or other types of non-volatile data storage. Processor 306 executes the application(s), such as subsystem components, which are stored in memory 302 or secondary storage 304 or received from the Internet or other network 322. The processing by processor 306 may be implemented in software, such as software modules, for execution by computers or other machines. These applications preferably include instructions executable to perform the system and subsystem component (or application) functions and methods described above and illustrated above including in the figures such as in
The applications preferably provide graphical user interfaces (GUIs) through which users may view and interact with subsystem components (or application in mobile device). These interactions allow users to invest or borrow money in accordance with the methods above including that shown in
Computer system 300 may store one or more database structures in secondary storage 304, for example, for storing and maintaining databases, and other information necessary to perform the above-described methods. Alternatively, such databases may be in storage devices separate from subsystem components. Databases of borrowers, investors, affinity groups and financial transactions may be stored and maintained on these computer systems 300 and memory systems 302 and 304.
Also, as noted, processor 306 may execute one or more software applications in order to provide the functions described in this specification, specifically to execute and perform the steps and functions in the methods described above. Such methods and the processing may be implemented in software, such as software modules, for execution by computers or other machines. The GUIs may be formatted, for example, as web pages in HyperText Markup Language (HTML), Extensible Markup Language (XML) or in any other suitable form for presentation on a display device depending upon applications used by users to interact with the system (or application).
Input device 308 may include any device for entering information into computer system 300, such as a touch-screen, keyboard, mouse, cursor-control device, gesture controlled touch-screen, microphone, digital camera, video recorder or camcorder. The input device 308 may be used to enter information into GUIs or other presented video and/or audio during performance of the methods described above. Display device 310 may include any type of device for presenting visual information such as, for example, a computer monitor, curved or flat-screen display (or mobile device screen), 3D or virtual reality display system. The display device 310 may display the GUIs and/or output from sub-system components (or application). Output device 312 may include any type of device for presenting a hard copy of information, such as a printer, and other types of output devices include speakers or any device for providing information in audio form.
Examples of computer system 300 include dedicated server computers, such as bladed servers, personal computers, laptop computers, notebook computers, palm top computers, network computers, tablets, mobile devices, or any processor-controlled device capable of executing a web browser, GUI, API, virtual reality or other type of programs and applications for interacting with the system. API's and other types of applications may be used with the system, particularly if mobile devices are being used.
Although only one computer system 300 is shown in detail, system and method embodiments described herein may use multiple computer system 300′ or servers as necessary or desired to support the users and may also use back-up or redundant servers to prevent network downtime in the event of a failure of a particular server. In addition, although computer system 300 is depicted with various components, one skilled in the art will appreciate that the server can contain additional or different components. In addition, although aspects of an implementation consistent with the above are described as being stored in memory, one skilled in the art will appreciate that these aspects can also be stored on or read from other types of computer program products or computer-readable media, such as secondary storage devices, including hard disks, floppy disks, or CD-ROM; or other forms of RAM or ROM. The computer-readable media may include instructions for controlling a computer system, e.g. computer system 300, 300′, to perform a particular method, such as methods described above with reference to
Included in the embodiments are computerized systems, comprising:
a Non-Payment-Dependent Note (NPDN) debt security issued directly from an Intermediary to an Investor,
an electronic election by an Investor of a Borrower's loan or group of Borrower loans from the loan choices offered to the Investor by the Intermediary,
a related benefit to the Borrower because of the Investor's election of the Borrower's loan determined by a benefit algorithm,
a loan made to the Borrower by the Intermediary using the funds provided by the Investor,
a repayment to an Investor of only the principal and interest payments from the Intermediary based on the terms of the Non-Payment-Dependent Note (NPDN) purchase,
an evaluation of loan performance of those loans elected by the Investor conducted by the Intermediary using a computer executing a computer algorithm, and
a bonus from the Intermediary to the Investor based on the evaluation of loan performance elected by the Investor.
Also included in the embodiments are computerized methods, comprising:
making an offer of a Non-Payment-Dependent Note (NPDN) debt security issued directly from an Intermediary to an Investor, either previous to or simultaneous with,
displaying, on a display device, the election options by an Investor of a Borrower's loan or group of Borrower loans from the loan choices offered to the Investor by the Intermediary, followed by,
granting of a related benefit, to the Borrower because of the Investor's election of the Borrower's loan, followed by,
granting of a loan to the Borrower by the Intermediary using the funds provided by the Investor, followed by,
granting of repayments to an Investor of only the principal and interest payments from the Intermediary based on the terms of the Non-Payment-Dependent Note (NPDN) purchase followed by,
making of an evaluative judgement of loan performance specifically those only those loans elected by the Investor conducted by the Intermediary, using a computer and a computer algorithm followed by,
granting of a discretionary bonus from the Intermediary to the Investor based the performance of the loans elected by the Investor.
The computerized systems of the embodiments may include:
Non Payment-Dependent Notes (NPDNs) that are not payment dependent on any underlying loan issued on an Intermediary's online lending platform,
NPDNs that are the general debt obligations of the Intermediary,
NPDNs issued by computer-generated program and electronically signed by the Intermediary in favor of the Investor,
NPDNs stored electronically by the Intermediary in accordance with custodial arrangements in place by the Intermediary,
a method for Investors to view their NPDNs through an electronic online dashboard on the Intermediary's website,
NPDNs that are callable, redeemable, and prepayable at any time by the Intermediary at par value plus any accrued but unpaid interest.
With regard to on-line Marketplace/Peer-to-Peer (P2P) lending systems, including specific Non-Payment Dependent Note (NPDN) subsystem, they may include:
an electronic interface by which Marketplace/P2P lending Non-Payment Dependent Notes (NPDNs) are provided for Investors to purchase directly from the Intermediary,
an electronic interface by which Investors purchase Marketplace/P2P NPDNs that earn the designated annual rate guaranteed by the Intermediary,
an electronic interface by which Marketplace/P2P NPDNs are held on an Intermediary's platform in electronic form in a computer storage device and not listed on any securities exchange, nor in physical or paper form,
an electronic interface by which Marketplace/P2P NPDN investors can accessing their notes using a graphical user interface including a “My Notes” tab in an Investor's account,
a computerized procedure by which the Intermediary will use the proceeds of NPDN purchases by Investors primarily to fund Borrower loans through the Intermediary platform but also for general corporate purposes, including the costs of making the NPDN offering,
a computer algorithm for the sourcing and use of funding to enable the Intermediary to make Borrower loans via an automated online system that collectively uses: funds from NPDN sales to Investors, Intermediary's direct funding account, funds from institutional capital providers, and funds from accredited Investors. Member payment dependent notes as well as non-payment dependent notes are used in combination in some embodiments.
The systems described may be implemented using non-transitory mediums. For example, a Marketplace/P2P system may operate from a non-transitory medium comprising instructions for:
making an offer of a Non-Payment-Dependent Note (NPDN) debt security issued directly from an Intermediary to an Investor;
displaying, on a display device, the election options by an Investor of a Borrower's loan or group of Borrower loans from the loan choices offered to the Investor by the Intermediary;
granting of a related benefit, to the Borrower because of the Investor's election of the Borrower's loan;
granting of a loan to the Borrower by the Intermediary using the funds provided by the Investor;
granting of repayments to an Investor of only the principal and interest payments from the Intermediary based on the terms of the Non-Payment-Dependent Note (NPDN) purchase;
making of an evaluative judgement of loan performance specifically those only those loans elected by the Investor conducted by the Intermediary, using a computer and a computer algorithm; and
granting of a discretionary bonus from the Intermediary to the Investor based the performance of the loans elected by the Investor.
An on-line peer to peer lending system that includes reducing risk is described above. An example of such an on-line peer to peer lending system may include reduced risk investor notes comprising:
an investor computing device, wherein information about a risk reduced note are displayed and borrower loans are displayed for selection;
a borrower's computing device, wherein data about a borrower's loan is entered;
a server system for processing data on risk reduced notes, borrower loans, and investor performance, wherein a first algorithm is executed to determine investor performance and provide an investor bonus and a second algorithm is executed to determine a benefit to the borrower;
memory, connected to the server system, for storing data on risk reduced notes and borrower loans; and
a network connecting the investor computing device, borrower computing device, server system and memory.
Affinity investment systems and methods for on-line lending including peer-to-peer lending are implemented on networks and computer systems as described above. In some embodiments, these affinity investment systems and methods use electronic symbols on webpages to represent an affinity group for on-line lending including peer-to-peer lending substantially as shown and described wherein individuals or businesses are associated with affinity groups having electronic symbols.
Affinity investment systems and methods are implemented using electronic symbols on webpages or displays to represent an affinity group in order to increase a borrower's sense of loyalty and obligation to repay the loan in order to provide borrowers with lower interest rates and provide investors with lower risk of loan failure (or ELR) in on-line Marketplace lending and peer-to-peer lending substantially as shown and described. Also, in the affinity systems, individuals and/or businesses are associated with affinity groups having electronic symbols for display.
Auto invest systems and methods for on-line investment including peer-to-peer auto investment systems are shown and described as being implemented on networks and computer systems. User interfaces are associated with the auto invest systems and methods. In some embodiments, auto invest systems and methods for on-line investment including peer-to-peer investment systems have investment criteria selection for risk, rate and/or bid amounts substantially as shown and described. In many embodiments, the auto invest systems and methods further comprise user interfaces and reports of investments made.
The embodiments include an on-line peer-to-peer lending system with auction or funding period bidding and automatic payment distribution to investors. Some of these systems comprise, a processor and a memory configured to: calculate a principal factor and an interest factor for each winning investor bid and configured to automatically distribute loan payments to individual investors using the principal factor and the interest factor for individual investment bids or orders. In most embodiments, the principal factor and the interest factor are fixed for the duration or life of a loan. Both payment dependent notes as well as non-payment dependent notes may be used in combination with this auction or funding period bidding and automatic payment system.
The contemplated modifications and variations specifically mentioned above are considered to be within the spirit and scope of the present invention.
Those of ordinary skill in the art will recognize that various modifications and variations may be made to the embodiments described above without departing from the spirit and scope of the present invention. It is therefore to be understood that the present invention is not limited to the particular embodiments disclosed above, but it is intended to cover such modifications and variations as defined by the following claims.
This non-provisional patent application claims priority to two U.S. Provisional Patent Applications: U.S. Provisional Patent Application No. 62/296,964 filed on Feb. 18, 2016 entitled System And Methods For Inventor-Directed Online Lending Using A Non-Payment Dependent Note Securities Structure and U.S. Provisional Patent Application No. 62/263,331 filed on Dec. 4, 2015 entitled System And Methods For Inventor-Directed Online Lending Using A Non-Payment Dependent Note Securities Structure. This non-provisional patent application hereby incorporates by reference in its entirety U.S. Provisional Application No. 62/296,964 and U.S. Provisional Patent Application No. 62/263,331.
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