With the boom in Internet-originated asset-backed product, industry players are carefully looking at the performance of these loans compared to those originated in traditional channels.
Concurrent with the company's growing presence as an online originator, CompuCredit Corp. is readying its first-ever term deal, a $300 million to $400 million private placement backed in part by credit-card loans originated on the Internet.
The deal, which will be structured in accordance with Rule 144A, will likely feature a monoline wrap, said Brett Samsky, CompuCredit's chief financial officer.
"We thought we had chosen our underwriter, but now we're looking at other options," Samsky said. "Unfortunately, our whole investment bank left last week."
Though CompuCredit has been originating loans online since last May, the company was in a testing period and only began adding a substantial number of accounts in January. Apart from the Internet loans, CompuCredit's loan pool will consist of loans from its other two niches: direct mail and telemarketing.
In terms of Internet versus traditionally originated loans, an official at one of the large banks with an established online program argues the difference is not so much in the credit quality, but perhaps the borrower pool.
"It's a different channel," the source said. "Different channels have different risks. If you think about it, we get solicitations by direct mail all the time. Who are the people who then go to the Internet to shop for a card?"
The source suggested that the Internet borrower, in the credit card sector at least, is likely to have worse credit then borrowers who receive solicitations.
However another source argued the opposite, that the vast majority of people on the Internet are of a better demographic than those without access.
"If you look at something like a NextCard, which is trying to differentiate their product and trying to make it more customizable, there might be segment out there that is drawn to certain types of attributes, like flexibility, that the Internet lender can provide," the source said. "These aren't necessarily people who can't get cards elsewhere. There's a gazillion different ways that NextCard lets you structure your account."
Regardless, lenders with traditional programs that hit the net often use the same process of approval, though perhaps applied to a different set of borrowers.
Take CompuCredit, for example. "The credit quality doesn't really change for us," said Samsky. "It goes through our same analytic models. We make a credit decision on a real time basis, and it goes through over 20 models in less than 15 seconds, and comes back with a decision. So it doesn't look any different than the credit cards we originate through the mail, because it is the same concept."
In terms of securitization, Jon Clark of Prudential Securities said that once the legal and structural issues related to Internet origination are addressed, from a performance and risk perspective, the loans can be easily blended with traditionally originated loans.
"However, from a marketing perspective, at least in the near term, people are going to have a different perspective on what's originated online and what's not," Clark said. "There is still a concern about fraud and other issues, and some of them revolve around the demographics of Internet users."
As for CompuCredit, the company is just one in a number of issuers with online programs set to hit market this year.
"You have a couple of new issuers coming to market probably, I've heard," said Samsky. "Nextcard may be coming to market this year, and we're definitely coming to market. Metris I think is going to be issuing more, and Providian and Capital One are going to be issuing a lot of paper."
At the end of the fourth quarter 1999, CompuCredit had just under $900 million in receivables across roughly 1.2 million accounts, compared to $488 million over 343 thousand accounts in the first quarter of 1999.
Currently, CompuCredit is originating about 100 thousand accounts each month, Samsky said, and plans to hit the 2 million market by year end.