The Evolution of Marketplace Lending
One of the interviewees in my new book ValueWeb is Ron Suber, President of Prosper Marketplace Lending. Ron gave a speech last week which is summarized below. Well worth a read.
It’s clear that just like payments, movies and music have moved online, the global move to online borrowing and lending is well underway. It’s unanimous. But, it’s not for the faint of heart!
While we have many evangelists and fans, there are also many skeptics, as well as myths and misperceptions about our industry that have been increasing with every misinformed story that is published.
The industry is also working feverishly to educate policymakers and inform sound policy development through new organizations, such as the first Marketplace Lending Association.
Now the industry is at an inflection point. As I noted this year (and last year), our industry has evolved from a novelty, to an interesting new niche, to a great idea.
In order to become something that people can’t live without (i.e. the smartphone), there are changes and improvements that our industry needs to make. These include:
- Improving Risk and Underwriting: We must continue to improve our risk models, verifications, and collections practices. This is the most important thing we do and it will continue to be the most important thing we do as our industry matures.
- Maintaining an Equilibrium in the Marketplace: More balance between what I refer to as the left (investors) and right (borrowers) legs of the stool (the marketplace). There are periods of imbalance for any marketplace business – we’ve seen this with Uber and AirBnB as they gain scale and mass adoption. Still, equilibrium is something we all continually strive for and it will continue to be a major focus and priority for all marketplace lending platforms.
- Developing New Products: We have witnessed a shift in the way people interact with marketplaces on a day-to-day basis, thanks to companies like Amazon and Ebay. If we strive to better understand our customer’s daily needs, we can shift the way people interact with their personal finances on a day-to-day basis. To do this, we need to continue to deliver new products and services that make it easier for investors to invest in our loans. Until we increase access to our asset class through new vehicles, we will not be something that people can’t live without.
- Establishing an Open Ecosystem: Open systems thrive, while closed systems become obsolete. From AOL to Blackberry RIM, to the biosphere, we’ve seen time and again that closed systems do not scale. Marketplace lending needs to be ubiquitous. To do this, we must maintain an open dialogue, educate and share information with the public and create a broader understanding of our platforms and products. We need to encourage the development of a sophisticated ecosystem for our industry that improves data visualization, transparency, standardization and liquidity. Firms like Orchard, PeerIQ, DVO1 and Monja are already helping to pioneer this ecosystem.
As we look towards the future, I encourage the collective marketplace lending industry to embrace the notion that change is inevitable. This type of change requires a certain amount of resilience but it is necessary. As we go through this evolution together, I urge the industry not to lose sight of our important shared goal: to give people access to affordable credit.
Just for further information, here’s an overview of Prosper:
Q4 proved to be a record breaking quarter for Prosper, with $1.15bn in loans originated through the platform. The $1.15bn closes out a year in which a grand total of $3.7bn was lent. That’s more than double what the platform accomplished in 2014, when $1.6bn was lent on the year. Prosper’s cumulative lending volume now sits somewhere between the $6bn and $7bn mark. SoFi hit the $6bn mark about a week before Christmas. The race for second place in the marketplace lending volume game is heating up.
We also learn that Prosper hired a massive 105 people in the 4th quarter of 2015 alone. For some perspective, there are perhaps only 3 platforms in the UK – perhaps less – that employ over 100 staff. Prosper is now home to 623 employees, up from 238 at the close of 2014.
Choose a Client Portal as Wisely as Choosing Your Dog
People tell me that dogs are a sign of how the dog owner feels about him or herself and what they value. I agree.
The 6'9" man with the tiny dog tells me that he values love, being cuddled and protected. The scruffy 5'9" man with the two greyhounds tells me he values the feeling of being stately and proper. And the woman with the fancy white poodle values feeling sharp and noticed.
A consumer portal is no different.
The portal and contents send a clear message on what the business values the most and wants its clients to value. If the portal showcases investment performance, the advisory firm is telling the client that investment performance matters the most.
If the portal accentuates a person's net worth or probability of reaching their financial goals (2nd home, college, retirement), the advisor is telling the client to care most about achieving their goals and watching their bottom line.
So before your business chooses a consumer portal, think about the message you want to send to the public and clients. It is no different than the message that your dog is publicly sharing about you. What you choose tells others what you value. And just like a dog, you can't return the portal so easily. So choose wisely.
- 1 of 1770