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.
Most Read IRIS Articles of the Week (February 20-24)
Here’s a look at the Top 11 Most Viewed Articles of the Week on IRIS.xyz, February 20-24, 2017
Click the headline to read the full article.
Becoming cyborgs is the way to go for financial advisers…blending robotics and humans into one organism. You see, I am convinced that robo-advice models will succeed and prosper. — Tony Vidler
With the global economy warming up, but political uncertainty remaining a constant, it’s more important than ever for investors to position their global portfolios to navigate long-term market volatility. That’s where the power of diversification comes in ... — Yazann Romahi
The financial world is noisy and it’s easy to become distracted from your most important long-term goals. One way to cut through the noise is to focus on just the two factors that ultimately determine your approach to everything else in your financial life; namely, Market Risk and Shortfall Risk. — James E. Wilson
It’s important to admit the truth behind our actions in order to rectify past and future mistakes or regrets. Living in denial only perpetuates making decisions that could potentially lead to financial disaster. — Michael Kay
There's one key approach that makes you invaluable to your clients so they want to stay with you for the long-term. You have to genuinely be interested in people. — Paul Kingsman
When you start dating, you usually start off sharing stories. Tales of your childhood, your previous relationships and your college days. Those stories help explain to your partner who you are and how you act. — Mary Beth Storjohann
It runs counter-intuitive to what we have been led to believe business is all about: make more money and everybody wins, surely? Talk about revenue so that everyone knows what’s important. What’s the problem? — Barry Chandler
In the wake of President Donald Trump’s stunning upset victory, however, muni investors were forced to readjust their expectations of fiscal policy going forward. Because Trump had campaigned on deep cuts to corporate and personal income taxes, equities soared while munis sold off, ending a near-record 54 weeks of net inflows. — Frank Holmes
What does it mean to be a customer-centric company? That seems to be the question of the week. It started off with one of our subscribers emailing in the question, followed by two reporters wanting my take on this now-popular phrase for their interviews. — Paul Laughlin
Everywhere I look I see organizations and people investing heavily in new initiatives, transformation, and change programs. And in almost every case the goals will never be met. One of the most crucial causes of the failure? The right questions were never asked at the outset. — Paul Taylor
Why should we think the head of a private equity company could effectively “fix” US Intelligence? It is not apparent that this individual is even remotely qualified to fix the US intelligence apparatus. — Kathleen McBride
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